SEBI is likely to relax norms with regard to mutual fund investments in small and mid-cap stocks, during the upcoming board meeting on February 17.
SEBI will make it easier for fund managers to pick stock in the small and mid-cap segment, sources with knowledge of the matter told BusinessLine.
Curbs on inflows
In 2018, SEBI issued norms on re-categorisation of mutual fund schemes and put out certain criteria that made it difficult for fund managers to invest large money in many small and mid-cap companies. SEBI defined large-caps as the first 100 stocks by market-cap, mid-cap from 101 to 250, and small-cap (stocks below 251), which it said will be updated half-yearly.
With this, the pool suddenly became smaller and MFs put curbs on inflows into small- and mid-cap schemes. Almost all the large fund houses put curbs in accepting money in small- and mid-cap schemes.
SEBI will relax these norms to include more stocks under the small- and mid-cap category, a source said. SEBI chairman Ajay Tyagi, who completes his term in February and is eligible for another term, had announced few days ago that SEBI will re-classify small- and mid-cap schemes.
Restricting investment
Mutual fund managers had complained to SEBI that its norms were restrictive and had taken away their flexibility to invest in the small- and mid-cap segment.
After SEBI’s norms came into effect in 2018, small- and mid-cap segment stocks witnessed a massive fall of between 60-80 per cent, as mutual funds had to re-adjust their portfolios. Most stocks are yet to recover from this fall.