Investing your money in the right mutual fund can be a challenge in itself but waking up one day and finding out its name has changed could cause you more worry. However, if this has happened to you and you’ve begun panicking and typed in “What do I do if my mutual fund name has changed?” frantically on Google, don’t panic. The changes are a part of SEBI’s (Security and Exchange Board of India’s) new announcement, where there are defined categories of funds. Existing funds need to comply with these norms and rename schemes so that they become easier to categorize. Through this article, you are going to be able to understand the categorization better and make more informed decisions when you invest the next time.

The names of Mutual funds can be misleading. For example, funds which call themselves “Mid-cap” may end up investing in a “large-cap”, and some “short-term” investments mature only after a few years. Renaming the plans in line with SEBI’s new rules will help ensure clarity,  and enable you to take a call on which investments you want to retain.

Same fund in a new avatar:

Your money disappearing one day from your invested scheme can be a very unpleasant experience, but with new SEBI guidelines, there are bound to be some changes that will take place as mentioned below to the funds. It is important to remember that you will still have your money intact in the fund because the only thing changing is its name or the way it will be managed. All you’ll need to do is call up your mutual fund customer care or investment banker and ask them to mail you the details of the new titles if any, and you can continue to invest as usual.

SEBI has mandated that every mutual fund should have one scheme per category. Under these new rules, there are three possible changes that your fund may reflect:

• Changes in the name where the funds are provided with a different name but will primarily do the same thing. If this is the cause of change for your fund, you can simply continue your investments
• Character changes where the fund will be managed In such cases, you will need to review the changes to see if they fit in with your requirement and take a call on continuing or exiting
• There will be mergers where the current scheme will merge into another with the new fund acting differently. You will need to assess the impact of the change and choose to continue or exit

 What will change:

1. NAV Changes: In cases where two schemes are merging, e.g. scheme A&B where A will merge with B, there will no NAVs for scheme A after the merger and scheme B will continue with the same NAV that it had before the merger took place.

2. Exit Loads: Fund houses will need to pass the addendum and inform investors about the change in the attributes of how these funds will be managed. For this, they will be giving an exit load free window to exit without paying an exit load.

3. Taxation: When you switch/redeem units from one scheme to another, then the short/long-term capital gains apply. But in cases of merger, there will be no tax implication as the investor will get the new fund units. The effective buy price (gains/losses in the fund) and the date of the acquisition remains the same, but the number of units will change.

The reason behind the changes

One of the reasons that the SEBI had decided to issue these new rules is because the regulator had objected to the use of certain names in funds. “Advantage,” “Credit,” “Plus,” “Prudence” and “Focused” were some of the words that were deemed misleading by the SEBI. So this move is in the interest of investors.

This move is good for the industry in the long term, but existing investors in few cases will get impacted. This is also an extra effort for fund houses and clients to communicate and take action accordingly. Most of these changes will be done by June 18. A big change for the industry is that historical returns in a lot of cases will lose their relevance as these funds will be managed differently after these new changes. So investors should be very careful about selecting funds on the basis of past returns or the star rating of the fund. Rather one must understand the objective and then invest.