Sebi introduces flexi cap category in mutual funds

Securities and Exchange Board of India or Sebi has given the green signal to fund house to the introduction of a flexi cap category. The introduction of new category may be a great relief to investors who are worried about the fate of their multi cap funds after Sebi changed their investment norms.

Sebi had changed the investment norms of multi cap funds on September 11. According to the new rule, multi cap funds will now have to invest at least 25% of their corpus in each large-, mid- and small-cap stocks. Many fund houses had raised concerns about the risk in investing 25% in mid and small cap stocks and had demanded the formation of a flexi cap category.

Like the earlier multi cap funds, the new flexi cap category will have the freedom to invest across market capitalisations. The Sebi mandate is to invest at least 65% of their corpus in equity. With the introduction of new flexi cap category, most multi cap schemes are likely to become flexi cap schemes. While changing the investment norms of multi cap schemes, Sebi had given fund houses time until January to mee the new norms.

"Mutual Funds have the option to convert an existing scheme into a Flexi Cap Fund subject to compliance with the requirement for change in fundamental attributes of the scheme in terms of Regulation 18(15A) of SEBI (Mutual Funds) Regulations, 1996," Sebi said in the circular.

“This is a very good decision by the regulator in the interest of investors who want complete flexibility in ownership of companies across market cap buckets. Investors would rely more on the fund managers capabilities and decisions to decide market cap bias," said Akhil Chaturvedi, Associate Director & Head of Sales, Motilal Oswal Asset Management Company.

Chaturvedi also said this also would give flexibility to managers to make investment decisions basis their conviction on the companies irrespective of their market caps.

"Since this a new category which is getting created, most multicap funds may get their schemes reclassified in to flexi cap category. Further, multicap category is an additional option available to managers as product option which will be managed as per market cap ceilings prescribed by Sebi,” added Akhil Chaturvedi.