Fintotal News Analysis | Mutual Funds to Have Better Labeling
Mutual Funds to Have Better Labeling
Ruby Jacob, 20 Mar 2013

What's in a name? Lots- when it comes to buying products. And when it is about choosing financial products like mutual funds and life insurance, where the average buyer has little knowledge to judge by features, almost everything depends on the name and brand.

Mutual funds regulator SEBI has stepped in to make things easier for investors and wants fund houses to label MF products with specifications that will help an investor choose schemes suitable to need.

There are 1000s of mutual funds in the market for an investor to choose from. In the diversified equity segment itself there about 300 funds. The average investor might rely on recommendations by friends, agents or on advertisements to select a fund for her.  To top it many mutual fund AMCs have been in the business of launching mundane new funds with fancy names in the past. You have a SMILE fund from Sundaram, RIGHT fund ICICI Pru, TIGER fund from DSP BlackRock and a CUB fund from ING Vysya.

Besides names of funds, the categories can also be misleading. One might expect Monthly Income Plans (MIPs) would give cash inflows every month but this doesn't have to be the case.

Securities market regulator SEBI has notified all mutual fund houses to adhere to a uniform labeling practice. Accordingly close to the name of the scheme there will be a box having a colour indicating risk. Blue would mean low risk as in debt funds, Yellow would signify medium risk as in balanced fund and Brown would stand for high risk as in equity funds.

Besides the box near the fund's name will also clearly mention in words if it is an Equity fund or Debt fund. The box is supposed to have nature of scheme which could be wealth creation, providing regular income, etc along with the time horizon in which it can be achieved.

There will also be a disclaimer in the box telling investors to consult their financial adviser if they are not sure if the fund is right for them. This labeling will be present on the scheme's application form, other related documents and in advertisements as well.

These new labeling practices will be effective from 1 July 2013 however AMCs can start using them in existing schemes if they wish to. The regulator wants to improve the investment environment in securities market for the investor mass of the country which is presently crowded in fixed income products like FD, traditional insurance policies or gold. These practices are a tiny step towards making mutual funds more investor-friendly though they might not go a long way in curbing mis-selling of funds.

To be successful at mutual fund investing nothing can be more helpful than educating yourself. There are plenty of good online resources which you can resort to. You can even make use of simple articles, procedures, ready reckoners, fund reviews and other tools on Mutual Funds page on Fintotal portal.

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