Sanjay Swaroop, a conservative mutual fund investor from Odisha, was surprised when the words ‘credit risk’ suddenly cropped up in two of the mutual fund schemes he had invested in, thinking they were as safe as recurring deposits at banks.

He received a mail recently from HDFC Mutual Fund and ICICI Mutual Fund indicating the change in name of the ‘Regular Savings Fund’ into ‘Credit Risk Fund’ and indicating him to decide in 30 days whether to stay invested in the respective schemes, cash out or switch over to the other schemes without any charges.

“A simple mutual fund investment has become complicated abruptly. I invested in regular saving schemes as I thought these were less risky, but now the name itself says it is prone to credit risk. If the investment is liquidated where do I reinvest,” asks Swaroop.

Many investors are perplexed over the change in names of the schemes they have invested in and are undecided on the future course of action.

Fund houses have been renaming, merging and changing fundamentals of schemes to meet the norms. In all, 34 fund houses have made over 500 changes which have puzzled investors. Of the overall modifications, about 260 pertain to name changes.

“It is really confusing for investors in smaller towns. Some of them do not even open the regular communications sent by mutual funds thinking that they are promotional e-mails,” said Pranav Mishra, an independent financial advisor.

SEBI guideline

Last October, SEBI directed mutual funds to group their equity schemes under large-, mid- and small-caps based on market capitalisation of the stocks the scheme has invested in.

For instance, an equity large-cap fund will invest at least 80 per cent in large-cap stocks defined as the top 100 firms in terms of market capitalisation. Similarly, mid-cap funds will have at least 65 per cent investment in mid-caps that are ranked between 100 and 250 in market-cap, while small-caps would cover all other companies.

‘Most appropriate’

Nimesh Shah, Managing Director, ICICI Prudential MF, said the fund house is all geared up to meet the SEBI norms on recategorisation of schemes.

On the name-change in regular savings scheme to ‘credit risk fund’, he said the new name of the scheme is most appropriate since it closely indicates the investment strategy followed by the fund with 65 per cent of the portfolio invested in corporate bonds rated ‘AA’ and below.

Justifying the SEBI new norms, Suresh Parthasarathy, Founder, myassetsconsolidation.com, said though there may be some pain in the initial days it will help investors take informed decisions in future as there will be more clarity. “This exercise will lead to more awareness on the risks attached to mutual fund schemes. If one thinks they are safe putting money in banks, it is wrong, as bank deposits of up to ₹1 lakh only are insured,” he said.

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