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Mumbai: The Securities and Exchange Board of India (Sebi) on Sunday clarified that mutual funds have multiple options to comply with the multi-cap circular issued on Friday and that the new norms are aimed at ensuring that funds are true to so-called ‘label’. Sebi added that it will examine any proposals by the industry on ensuring compliance with true to label and appropriate benchmarking.
Sebi on 11 September had issued a circular mandating multi cap funds to allocate least 25% of their portfolios in large-, mid- and small-caps each by February 2021. This diktat had created apprehensions in a section of the industry that it could have a market destabilising effect and lead to huge amount of money flowing into small and midcap companies in a span of 6 months.
The strict allocation of funds is widely expected to shift liquidity upto ₹40,000- ₹50,000 crore to mid and smallcap stocks as fund managers will have to rejig their portfolio in next six months until February. The industry was also worried that are no suitable benchmarks available to ensure such rebalancing and majority of indexes are skewed towards large cap companies.
Sebi tried to put some of these concerns to rest by the clarification that rebalancing is just one of the routes to achieve compliance with the circular.
“Sebi would like to clarify that mutual funds have many options to meet with the requirements of the circular, based on the preference of their unitholders. Apart from rebalancing their portfolio in the multi cap schemes, they could inter-alia facilitate switch to other schemes by unitholders, merge their multi cap scheme with their large cap scheme or convert their multi cap scheme to another scheme category, for instance large cum mid cap scheme,” said Sebi in the statement issued on Sunday.
“Sebi is conscious of market stability and therefore has given time to the Mutual Funds till January 31, 2021 to achieve compliance with the circular, through its preferred route of which rebalancing of the portfolio is only one such route,” the regulator added.
According to Sebi’s 2017 circular on mutual fund classification the multi cap schemes have flexibility in terms of allocation to large, mid and cmall cap stocks.
“However, Sebi had recently been observed that some multi cap schemes have skewed portfolios, with over 80% of investment in large cap stocks akin to large cap schemes, and some multi cap schemes have near zero or insignificant asset allocation to small cap companies,” said the regulator.
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