MUMBAI: Market regulator Sebi has introduced a ‘flexicap category’ in mutual funds. Schemes in this category must invest at least 65% of their corpus in stocks. However, there are no restrictions in terms of large, medium or small cap allocation.
In September, Sebi had introduced new rules for multi-cap funds, requiring them to invest at least 25% of their corpus in large-, mid- and small-cap stocks. This raised concerns among the industry that existing multicap funds would be forced to buy small and mid-caps, although these segments may not have the liquidity to absorb large flows of mutual funds. In response to the circular, industry association AMFI had asked the regulator to create a new category of flexicap that does not have such stipulations.
Mutual fund schemes in the new category will have to adopt the flexi cap name. Existing schemes may reclassify themselves in this category. However, this constitutes a change in attributes and such schemes will have to give investors a 30-day window to exit, free of any exit charges.
“The option to convert an existing scheme to flexi cap is very good. Instead of introducing new funds, fund houses should convert existing multicap funds to flexi cap. This would be better for investors,” said Viral Bhatt, founder of Money Mantra, a Mumbai-based Mutual Fund Distributor.
Vidya Bala, co-founder of Prime Investor, a mutual fund research firm, however, expressed concern about the growing number of mutual fund categories. “The old multi-cap category had the same flexibility. Now it has become similar to the large and mid-cap category and this new category has been created. I don’t think this constant creation of new categories is useful. It becomes an asset. compilation of exercises for funds houses “, said
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