ICICI Prudential Mutual Fund radically alters schemes; AMC clarifiesICICI Prudential Mutual Fund has made radical changes in at least four of its funds. If you have invested in  ICICI Prudential Ultra Short Term Fund, ICICI Prudential Dynamic Plan, ICICI Prudential Indo Asia Fund or ICICI Prudential Select Large Cap Fund, be prepared to see your fund transform into something else altogether.

If you don’t like the changes, you have two options. They are: One, you can stay put and live with the changed strategy. Or the other, you can exit before May 25, 2018, without an exit load, but with a tax burden as high as 30% depending on the asset class, your tax slab and the investment period.

Here are the major changes in some select funds of ICICI Prudential Mutual Fund:

ICICI Prudential Ultra Short Term Plan (AUM: Rs 6,647 crore) to be known as ICICI Prudential Corporate Bond Fund

If you parked your short-term money in this fund to get a little extra yield, be prepared for an extra surprise. This fund is becoming a corporate bond fund, mandated to hold corporate bonds rated AA and above, with no particular focus on ‘short maturity’. The scheme’s benchmark will also change from the CRISIL Short Term Bond Fund Index to the CRISIL Medium Term Corporate Bond Index. The shift in benchmark itself gives you the strongest hint of what is to come – short term out, the medium term in.

If you think the risk is the same, look at the fund’s Riskometer. The notification shows the dial moving from ‘moderately low’ to ‘moderate.’ If that’s not what you invested for, too bad.

ICICI Prudential Mutual Fund responded to our concern with the following statement: “Ultra Short Term Plan currently has a high-quality portfolio with higher exposure towards AAA paper and the modified duration in the low to moderate range. Post the scheme categorization the scheme will move into corporate bond fund category. This category requires the scheme to have a high-quality portfolio (65% in AAA and AA+ instruments) with no restriction on duration. Since the scheme is already having a high-quality portfolio and the duration will continue to be maintained in the low to moderate range, investors don’t have to panic for the change in category.”

ICICI Prudential Dynamic Plan (AUM: Rs 11,137 crore) to become ICICI Prudential Multi-Asset Fund

This erstwhile multi-cap fund is transforming into a multi-asset fund. There is nothing common between them except for the word “multi”. Multi-cap means that the fund can invest in companies across market capitalization. Multi-asset means that the fund can invest in multiple assets across market capitalization. The fund’s permitted allocation will move from 0-100% in equity or debt to 10-80% in equity, debt or gold. In other words, the fund will be able to invest as much as 80% of its assets in gold, once the new mandate goes into effect.

There are people who like gold, but a great many investors do not and if this is not an asset they have signed up for in this fund, then they are in a quandary. Exiting can mean the payment of tax, either short-term capital gains of 15% or long-term capital gains of 10% depending on how long you’ve held this fund.

ICICI Prudential Mutual Fund responded to this point with the following statement: “ICICI Prudential Dynamic Plan currently invests across market capitalisation and has the flexibility to invest 0-100% in equity and debt. The scheme used to invest dynamically in Equity and Debt based on market valuations, also the scheme SID allowed investments in other asset classes like REITs and InvITs and foreign securities. Post scheme categorisation, ICICI Prudential Dynamic Plan will be renamed as ICICI Prudential Multi-Asset Fund falling under Multi-Asset Allocation Category and will continue to manage Equity and Debt dynamically based on market valuations. Additionally, now the scheme can also invest in Gold and Gold ETF in addition to REITs and InvITs and foreign securities. Hence, retaining its dynamic and multi-asset nature. As per the new category, the scheme has to invest at least 10% in equity, debt and others assets (including REITs, InvITs, gold and commodity as permitted by SEBI). The SEBI mandate allows the Scheme up to 80% in either of the asset class, however, the endeavour of the scheme would be to have 65% exposure to equity and balance in debt and other assets with minimum 10% to each asset class.”

ICICI Prudential Indo Asia Fund (AUM: Rs 172 crore) to become ICICI Prudential Small Cap Fund

If you invested in this fund because you wanted to invest in Asian equities, you can forget your eastern dreams. This fund will now become a domestically focused small-cap fund. The fund mandate changes from investing in ‘companies, which are incorporated or have their area of primary activity in the Asia Pacific region’ to ‘investing in equity and equity-related securities of small cap stocks.’ The fund has allocated 12.35% of its assets to East Spring Asian Equity Fund (Class E) which will have to be sold off to comply with the new mandate.

If you invested to get exposure to Asian stocks, look elsewhere and pay tax on your way out.

ICICI Prudential Mutual Fund responded to this concern, as follows: “ICICI Prudential Indo Asia Equity Fund currently invests predominantly in India stock markets and a portion in Asian equities. Post the SEBI categorization, the Scheme would be categorised as Small Cap Fund with minimum exposure of 65%-100% in small-cap companies. However, the Scheme can invest 0-30% outside small-cap companies, as well.”

ICICI Prudential Select Large Cap Fund (AUM: Rs 540 crore) to be called ICICI Prudential Focused Equity Fund

This fund will transform from a large-cap fund, as the label states to a focused multi-cap fund called ICICI Prudential Focused Equity Fund. Focused means that it will not hold more than 30 stocks.

The fund currently holds 13 large cap stocks, meaning that it may not be much affected by the ‘focused’ part of the new mandate. However its current holdings are all, without exception, large-cap stocks and a throwing open of market cap is a radical departure. If you signed up for a ‘large cap’ fund, tough luck.

The investment objective of this fund will change from investing in the equities of ‘companies constituting the S&P BSE 100 index’ to investing in the stocks of ‘up to 30 companies across market capitalization i.e. focus on multicap’.

ICICI Mutual Fund sent us the following response to this point: “ICICI Prudential Focused Equity Fund (erstwhile ICICI Prudential Select Large cap Fund) will have a maximum of 30 stocks, and the portfolio will be multi-cap in nature. However, the current portfolio largely comprises of large caps, given the AMCs view that large-cap offers better value when compared to mid- and small-cap at the current juncture.”

You can get the full details of these scheme changes here.

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.