Capital market regulator Securities and Exchange Board of India (Sebi) has permitted mutual funds to introduce flexi cap schemes to offer elevated flexibility to mutual funds, practically two months after its asset allocation norms for multi-cap funds led to the demand for flexi cap funds.
“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 mentioned in a round dated November 6.
A Flexi-cap fund must make investments minimal 65 per cent of complete property in fairness and equity-related devices, however, in contrast to multi cap funds, there can be no restriction in allocating funds throughout large-cap, mid-cap and small-cap shares.
The market regulator had, in September, made it obligatory for multi-cap funds to allocate no less than 25 per cent of their portfolio to every of the three classes viz. large-cap, mid-cap and small-cap shares by February 2021.
This mounted allocation rule had triggered issues that lots of the mid and small cap shares didn’t have sound fundamentals to benefit extra inflows. There had been additionally fears that that current multi-cap funds can be compelled to buy mid- and small-cap shares and these segments wouldn’t have the liquidity to soak up the additional demand.
The Association of Mutual Funds in India (AMFI) had due to this fact demanded the formation of a flexi cap class that will not have such stipulations.
Under the flexi cap class, fund homes will even have the choice of changing current schemes into flexi-caps. “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 mentioned within the round.
But since this may represent a change in attributes, such schemes must give buyers a 30-day window to exit, Sebi added.