Mumbai: The Securities and Exchange Board of India (Sebi) clarified on Sunday that mutual funds have multiple options to comply with the multi-cap circular issued on Friday and that the new rules are aimed at ensuring that the funds are faithful to the so-called ‘label ‘. . Sebi added that it will examine any industry proposals to ensure faithful label compliance and proper benchmarking.
On September 11, Sebi had issued a circular requiring multi-cap funds to allocate at least 25% of their portfolios to large, mid, and small caps by February 2021. This diktat had created apprehensions in a section of the Industry that might have have a destabilizing effect on the market and result in a large amount of money flowing into small and mid-cap companies in a span of 6 months.
The strict allocation of funds is expected to shift liquidity to ₹40,000- ₹Rs 50 billion to mid- and small-cap stocks as fund managers will have to realign their portfolio in the next six months through February. The industry was also concerned that there were no suitable benchmarks available to ensure such a rebalancing and most indices are biased towards large caps.
Sebi tried to put an end to some of these concerns by clarifying that rebalancing is only one of the routes to achieve compliance with the circular.
“Sebi would like to clarify that mutual funds have many options to meet the requirements of the circular, depending on the preference of their participants. In addition to rebalancing their portfolio in multi-capitalization schemes, they could, among other things, facilitate change to other schemes by shareholders, merge their multi-cap scheme with their large-cap scheme, or convert their multi-cap scheme to another category of scheme, for example, mid-cap and large-cap scheme, “Sebi said in the statement. issued on Sunday.
“Sebi is aware of the stability of the market and, therefore, has given the Mutual Funds time until January 31, 2021 to achieve compliance with the circular, through its preferred route, of which the rebalancing of the portfolio is just one of those routes, “the regulator added.
According to Sebi’s 2017 circular on mutual fund classification, multi-cap schemes have flexibility in terms of allocation to large, mid, and small cap stocks.
“However, Sebi had recently observed that some multi-cap schemes have skewed portfolios, with more than 80% of investment in large-cap stocks similar to large-cap schemes, and some multi-cap schemes have an asset allocation almost zero or negligible to small-cap companies. ” “said the regulator.
.
