After introducing stricter rules for financial service providers and safety measures for individual investors, the Securities and Exchange Board of India (SEBI) is firing on all cylinders, by simplifying the selection process of financial products .

It is likely to introduce a new set of rules directing mutual fund houses to classify their offerings as per the asset categories. On the condition of anonymity, a few people with inside knowledge of this development told the media that the SEBI wants mutual fund houses to classify their products broadly in three categories—equity, debt, and hybrid. In addition, there will be more subcategories.

Offering more information about the pace of development, one of the officials said, "Fund houses will have to be true to the product label," said a member of the mutual fund advisory panel." SEBI will issue a circular with the list of classifications asking fund companies to comply with the requirement within six months", he added further.

Currently, 42 mutual fund houses collectively manage Rs 19.5 lakh crore. The schemes offered across all categories add up to nearly 2,000—a huge number. From time to time, SEBI has insisted that mutual fund houses merge schemes with similar attributes.

So far, the mutual fund industry hasn’t taken SEBI’s guidance seriously With informal letters being returned undelivered, SEBI is preparing to tighten the lasso around mutual funds houses. It seems the capital market regulator is likely to permit mutual fund houses to offer only one scheme in each category. In other words, if a mutual fund has two or more schemes in any subcategory, it will be forced to merge existing schemes.

As per the media reports, the SEBI-appointed committee has identified over 30 subcategories for the scheme classification. Within equity category, there may be 8-10 subcategories, another 16 in debt, and around 4 subcategories may be allowed under the hybrid asset class.

Shall SEBI reconsider this reclassification?

Ideally, it should. If you assume every fund house will try to expand its product portfolio to the best possible extent, the mutual fund industry will still have at least 1,260 (30 x 42) schemes on offer.

Moreover, merging close-ended schemes won’t be easy. Hence, despite doing the hectic exercise of forming new rules, merging schemes, and getting mutual fund houses to toe the line; the SEBI might fail to attain its objective to simplify the selection process for individual investors. Having good intent isn’t enough to bring about positive changes.

As far as the difficulty in scheme selection goes, you can be rest assured about it even today. Let the scheme count be 2,000 or 1,260 or 4,000; PersonalFN’s unbiased mutual fund research services will always hand-pick the right schemes for your portfolio. You may opt for Fund Select and Debt Select reports to gain insights from these detailed reports.

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