Sebi introduces flexicap category in mutual funds

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MUMBAI: Market regulator Sebi has introduced a ‘flexicap category’ in mutual funds. Schemes in this category are required to invest at least 65% of their corpus in equity. However, there is no restriction in terms of large-, mid- or small-cap allocation.

In September, Sebi had come out with fresh rules for multi-cap funds, requiring them to invest at least 25% of their corpus in large-, mid- and small-cap stocks. This raised concerns among the industry that existing multicap funds would be forced to buy mid and small caps even though such segments may not have the liquidity to absorb large flows from mutual funds. In response to the circular, industry association AMFI had asked the regulator to create a new flexicap category that does not have such stipulations.

Mutual Fund schemes in the new category will have to adopt the name flexi cap. Existing schemes will be able to reclassify themselves to this category. However this constitutes a change in attributes and such schemes will have to give investors a 30 day window to exit, free of any exit load.

“The option to convert an existing scheme into a Flexi Cap is very good. Rather than introducing new fund, converting existing fund into flexi cap is a better choice for an investor,” said Viral Bhatt, founder, Money Mantra, a Mumbai-based mutual fund distributor.

Vidya Bala, co founder, Prime Investor, a mutual fund research firm, however, expressed concerns about increasing number of mutual fund categories. “The earlier multi cap category had the same flexibility. Now that has been made similar to the large and mid cap category and this new category has been created. I don’t think this constant creation of new categories is helpful. It becomes an asset gathering exercise for fund houses,” she said

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