Mutual Fund houses are in the process of making changes to several schemes to comply with a SEBI classification system introduced in October 2017. The bulk of these reclassifications are technical and retain the scheme’s original character. This is also the case with the changes announced by Axis Mutual Fund so far, except the two covered in this article. These scheme alterations which will go into effect on 18th May.
Investors can exit these schemes until 18th May 2018, without paying exit load. However, they may have to pay short-term capital gains tax as per their slab rate or long-term capital gains tax at 20% (with the benefit of indexation).
Axis Triple Advantage Fund
This scheme will retain the same name but will see a dramatic shift in its asset allocation limits. At present, it is allowed to invest 30-40% in equity and debt respectively and 20-30% in gold.
Under the new mandate, the scheme will be allowed to invest 65-90% in equity, 10-30% in debt, 10-30% in gold and 0-10% in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs).
The lower limit of 65% means that the fund will be classed as an equity fund for tax purposes and will thus incur lower rates of short term and long term capital gains tax than a debt fund. The fund currently has 37% of its assets in equity, 36.3% in debt and 26.4 in gold. It will have to almost double the equity component to meet the new mandate and make corresponding reductions in debt and gold.
Axis Constant Maturity 10 year Fund
The 10-year Government of India Bond is considered as a ‘benchmark’ and tracking return on this security was the mandate of this fund. In a sense, if you consider the 10-year bond as an index, this scheme was like an ‘index debt fund.’
Axis Constant Maturity 10 year Fund is currently obligated to invest in long-dated government securities such that the returns are ‘similar to those of 10-year government bonds’. It is directed to maintain an average maturity in the range of 9 to 11 years. This scheme will morph into ‘Axis Gilt Fund’ without any such requirement. The focus on government debt will continue but the new mandate also permits allocation up to 20% in money market and debt paper other than government debt.
Axis Mutual Fund spokesperson responded to our query by stating that the fund house was seeking to make the two funds more relevant to investors. “The changes made were as a result of feedback obtained in the market from investors. With regard to Axis Triple Advantage Fund, exposure to the three asset classes has been maintained despite an increase in the equity allocation. In case of Axis 10 year constant maturity fund, investors indicated a preference for an actively managed gilt fund rather than a 10-year fixed duration fund.”