The mutual funds' lobby has urged the market regulator to consider creating a new category of funds that would allow rebranding of existing multi-cap schemes without much upheaval, a person aware of the matter said.
The Association of Mutual Funds in India suggested creating flexi-cap funds, which would not infringe on the true-to-label policy of the regulator, the head of a domestic asset management company told BloombergQuint on the condition of anonymity.
According to Ajay Tyagi, chairman at the Securities and Exchange Board of India, AMFI has made representations to the regulator pertaining to its circular issued earlier this month on asset allocation in multi-cap equity schemes. While refusing to divulge any details, Tyagi, at the annual general meeting of AMFI, said the matter is being discussed.
On Sept. 11, SEBI directed that multi-cap plans will have to invest at least 25% of the assets each in equity and equity-related instruments of large-, mid- and small-cap stocks. The remaining 25% can be invested as per the fund manager's judgement. This, the regulator said, was aimed at making multi-cap schemes true-to-label as most such plans were heavily skewed towards large caps.
That led to estimates of a massive outflow from large-cap stocks and subsequent inflow into small caps. Fund managers raised concerns that small caps, which only account for a little over 10% of overall market capitalisation of listed companies, would not be liquid enough to absorb those inflows.
A couple of days later, SEBI clarified that mutual funds will have multiple options, besides restructuring portfolios in their multi-cap schemes, in order to meet the new rules. These will include migrating unitholders to another scheme, or merging with a large cap or large-and-mid-cap scheme.
Tyagi on Tuesday reiterated that it was not SEBI's intention to force mutual funds to make investments that were not in the interest of investors.
Watch SEBI chairman's address to AMFI members:
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