SEBI allows new fund category, soothing industry worries

India’s market regulator has launched a brand new class of mutual funds that may make investments freely throughout large-, mid- and small-cap shares, lower than two months after a rule change sparked fears that some funds could possibly be pressured to reallocate their holdings.

The Securities and Exchange Board of India (SEBI) on Friday introduced “flexi cap” schemes that must make investments a minimal of 65% of complete property in fairness, and allowed fund homes to rename current schemes to the brand new class.

SEBI in September demanded an equal allocation of 25% for large-, mid- and small-cap shares in so-called multi-cap funds that handle property value about $20 billion in an effort to make their investments true to the identify of the scheme.

That raised considerations the funds would begin dumping blue-chip shares in favour of riskier bets to conform, as some multi-cap schemes had allotted greater than 70-80% to large-cap shares.

It additionally led to a rally in small- and mid-cap shares in anticipation of potential large purchases by funds and prompted the Association of Mutual Funds in India (AMFI) to foyer for the brand new class with out restrictions.

Mutual fund homes welcomed SEBI’s transfer on Friday, saying many would merely rename their multi-cap fund to the brand new class.

“This also would give flexibility to managers to make investment decisions (based on) their conviction on the companies irrespective of their market caps,” mentioned Akhil Chaturvedi, head of gross sales at Motilal Oswal AMC.

Nilesh Shah, managing director of Kotak Mahindra AMC, mentioned its multi-cap fund, the biggest such scheme in India, would transfer to the flexi-cap class after requisite approvals.

“Except the name of the fund … everything else – fund manager, investment process and fund portfolio – will remain the same as before,” mentioned Shah, who can be the chairman of AMFI.