What if a fund changes its strategy?


A fund can bring changes to its strategy in many ways.

Mutual fund can change the nature of the scheme from the one mentioned in the offer document.

A mutual fund is an efficient tool for wealth creation. It usually reaps the benefit in the long run. Investors also stay invested over some time for monetary gain.

However, anything can happen in the meantime, such as economic slowdown, changes in a macroeconomic platform where the value of rupee could slip, and inflation rate could be higher or something like Coronavirus pandemic.

Therefore to meet the new realities, the fund may require reshuffling the portfolio and make some changes in the strategy by investing in companies that can sustain the current economic condition and resist the changed macroeconomic scenario.

What changes can a mutual fund bring about? What are the options left to an investor?

A fund can bring changes to its strategy in many ways. Here are some instances.

Change in the asset allocation while deploying funds of investors

Any far-sighted fund managers can change the asset allocation keeping the market trends into consideration. He can make changes in the percentage of the fund invested in equity or debt instruments other than what is disclosed in the offer document. It can be done in the short term mainly to protect the NAV, and the fund managers are allowed certain flexibility to make changes in the asset allocation in the interest of the investors.

But, when the mutual fund wants to change the asset allocation permanently, the unitholders are required to be informed about that permanent change. In that case, investors are also given the option to exit the scheme if they want, at prevailing NAV without any load.

Change in the nature of the scheme from the one specified in the offer document

The mutual fund can change the nature of the scheme from the one mentioned in the offer document. However, whenever any changes made in the fundamental attributes of the scheme, such as structure, investment pattern, etc., written communication is sent to every unitholder, and it is also advertised in the newspapers.

If unitholders do not want to continue with the scheme, they have the right to exit the scheme at the prevailing NAV without bearing any exit load. A similar procedure is followed by the mutual fund when they convert the scheme from close-ended to the open-ended scheme.

Change in the load beyond the level mentioned in the offer documents or imposing a fresh load

Any change in the load by the mutual fund will apply only to prospective investments and not to the original investments. Usually, they cannot increase the exit load beyond the level mentioned in the offer document. In case mutual funds want to impose fresh loads or increase existing loads, they have to amend their offer documents to make the new investors aware of loads at the time of investments.

Change in the Asset Management Company’s Controlling Interest or change in sponsor

Any alteration in the controlling interest of the AMC can be made under the following conditions.

  • The trustees of the fund and the Board (i.e., SEBI)give prior approval;
  • Written communication is sent to each unitholder mentioning the proposed change and containing the information such as the activities of the new sponsor and its financial performance, the condensed financial information of all the schemes, and the amount of unclaimed redemption and dividend, including the procedure for claiming that amount by the unitholders. An advertisement is also given in newspapers.

All the conditions prescribed above need to be complied with while seeking the SEBI approval for such change.

The unitholders may exit on the prevailing Net Asset Value without any exit load. It is advised that at least 30 days should be given to the unitholders by the mutual funds to exercise the exit option.

How will you, as an investor, come to know about the changes, if any, that took place in the mutual fund?

The changes may occur from time to time in a mutual fund. The mutual funds are required to inform their unitholders about all the material changes. Many mutual funds send newsletters to their investors quarterly.

At present, as per the SEBI guidelines, Scheme Information Document (SID) is required to be revised and updated at least once in a year. In the meantime, you can know about the material changes by way of addendum to the offer document until the offer document is revised and reprinted.

A fund that changes its investment objective or approach might not fit your strategy anymore. So, whenever there is a change in the fund’s strategy, try to understand whether you will benefit from that change or not. As an advisor, we would suggest to let your mutual fund manager change the strategy to meet the changes in the real world in your interest and observe the outcome. If it acts otherwise, you will always have the option to exit the scheme at the current NAV without any exit load.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh / Enquire