The Securities and Exchange Board of India’s (Sebi) decision to launch a new category of funds – lifecycle funds – is expected to align investments according to investor objectives. Since the basic idea is to provide a goal-based scheme, investors can use to plan significant expenditures in the future.
The new category can be launched with a maturity period of 5-30 years in the multiples of five years. A unique characteristic of the funds is that it defines allocation bands for investment in equity and debt, depending on the remaining maturity.
Experts believe that while the new category will offer lower flexibility in terms of tactical allocation, it will also offer more clarity to investors.
End of Solution-Oriented Labels
Chirag Mehta, CIO, Quantum Mutual Fund thinks that like most of the recent categorizations in mutual funds by the regulator, lifecycle funds are aimed to simplify investment and realign the existing schemes to investor objectives.
He added the specified allocation bands will reduce the flexibility for the fund manager to make tactical calls based on the prevalent economic conditions and adds that the category has a trade-off between reduced flexibility for the fund manager and better clarity for the investor.
While Mehta believes that while it may impact returns, investors who wish to chase higher returns in the near-term can invest in other categories and use this category separately.
Milestone Investing
Alok Singh, CIO – Equity and Debt, Bank of India Mutual Fund also agreed that the new category will be useful for milestone investing and asset allocation depending on the risk appetite and goal timeline.
He added that as the allocation bands will be specified at the folio level, it will not impact his investment decisions. He also believes that the category will be useful in inculcating a sense of discipline among investors in terms of asset allocation and reduce the tendency of fund houses to launch funds for merely asset accumulation.