Sebi brings in flexi-cap category with freedom to invest across multi-caps

NEW DELHI:  The Securities and Exchange Board of India (Sebi) has introduced ‘flexi-cap’ category to provide increased flexibility to mutual funds.

The new category will allow existing funds to continue without restrictions in portfolio, save for just tweaking the name.

-cap funds will be required to invest at least 65 per cent of the corpus in equity, but, unlike multi-cap funds, there would be no restriction in allocating funds across large-cap, mid-cap and small-cap stocks.

“In order to give more flexibility to the mutual funds and taking into account the recommendations of Mutual Fund Advisory Committee (MFAC), a new category named ‘Flexi Cap Fund’ under equity schemes will be available,” Sebi said in a circular dated November 6. 

In September the capital markets regulator announced new asset allocation rules for multi-cap funds, which are required to invest at least 25 per cent of the corpus in large-, mid- and small-caps.

This upset the investors in many large mid-cap funds including Kotak Standard Multicap Fund, the biggest multi-cap scheme holding assets worth Rs 29,551 crore.

There were also fears that existing multi-cap funds would be compelled to purchase mid- and small-cap stocks and these segments would not have the liquidity to absorb the extra demand, a point raised by the Association of Mutual Funds in India (AMFI).

After taking feedback from the industry, Sebi introduced flexi cap schemes to avoid disturbance in the existing multi-cap funds. 

All they have to do now is to change the name. The move has cheered up investors who were cautious about their investments in multi-cap funds due to the change in portfolio allocation rules. 

“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,” the markets regulator added. 

However, the fund houses, in such cases,  will have to give investors a 30-day window to exit, without any exit load.