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Sebi gives flexibility to mutual funds to comply with new multi cap rules

14-Sep-2020

Sebi issued another circular on Sunday evening to provide clarification on its September 11 circular on ’portfolio allocation rules for multi cap funds.’ Sebi said, the need to change the asset allocation in multi cap funds arose to make them ’true to their label’. "In order to achieve the objectives of True to Label and Appropriate Benchmark, a need was felt to review the scheme characteristics of Multi Cap schemes and take necessary steps to clearly distinguish Multi Cap schemes from other category of schemes," read Sebi’s clarification circular.

The Market Regulator noted that some multi cap schemes had skewed portfolio. It said, "Multi cap schemes have flexibility in terms of allocation to large, mid and small cap stocks. However, it has 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."

Sebi, in its latest circular has provided many options to the mutual fund houses to meet the new portfolio allocation rules. Apart from rebalancing the portfolio, Sebi listed the following options for AMCs to comply to the new rules:

  • facilitate switch to other schemes by the unit holders
  • merge their multi cap scheme with their large cap scheme
  • convert their multi cap scheme to another scheme category for an instance, large cum mid cap scheme

"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," said the circular.

Sebi is open to examine any proposals from the industry received in this regards.

Mutual fund managers ask investors not to make any investment decision in haste. They assure, everything will be fine.

Source : Live Mint

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