Mutual Fund Families - Types of Schemes and Investor Advantages

What is a Mutual Fund Family?

A mutual fund family refers to the group of schemes offered by a single Asset Management Company (AMC) under its registered brand name. Fund houses operate as families and offer different types of funds, which include equity funds, debt funds, hybrid funds, and liquid funds. These schemes share common management infrastructure and investor servicing systems but follow scheme-specific investment mandates and regulations.

Investors are allowed to invest without repeating the KYC formalities once the KYC has been completed through a SEBI-registered KYC Registration Agency (KRA). This benefit is not limited to one AMC. It helps make portfolio diversification and administration much easier.

Types of Schemes Within a Fund Family

The schemes offered by fund families are usually a combination of more than one category:

• Equity Schemes are those that hold a high amount of stocks, and they are riskier but aimed at long-term wealth creation.
• Debt schemes invest in bonds and debentures from corporate or government issuers. These generally aim for income generation and relatively lower risk compared to equity funds, though they carry interest rate and credit risks.
• Hybrid Schemes allocate investments between debt and equity to maintain equilibrium between growth and stability.
• Liquid and Money Market Schemes are very liquid and have quite low risk as compared to equity funds, although they are still vulnerable to credit and interest rate risks.

Individual schemes in a fund family have their own portfolios, NAV, and expense ratios, although the same AMC manages them.

Benefits of Investing Within the Same Fund Family

There are several operational benefits associated with investing in the different schemes in the same mutual fund family:

• Ease of tracking and record-keeping make it easy to access and track investment and consolidated account statements.
• It is operationally convenient to change between schemes in the same AMC. Exit loads are determined by the scheme’s terms and holding period. Moving to a different AMC requires redemption and a fresh investment.
• SEBI regulates expense ratios, which depend on asset size and scheme category. Expense ratios are determined at the scheme level and are not reduced merely by investing in multiple schemes of the same AMC.
• Regular communication by AMC and clean reporting also helps investors to have one point of contact for complaints or requests for services.

Choosing the Right Fund Family

Whereas it may be easy to invest in a fund family, investors have to look at the performance, the expertise of the fund manager and the variety of the schemes prior to investing. All fund families do not perform equally across all categories; they either are more successful in equity or specialise in debt.

These comparisons in terms of expense ratios, consistency of returns and adherence to the said investment mandates should be done across the schemes. Cross-fund family diversification can also be taken into consideration to minimise the concentration risk and to obtain best-in-class schemes across different AMCs.

Investors should assess whether the fund family fits their financial objectives, risk levels, and investment horizon to construct a portfolio within one AMC.