Capital market regulator Securities and Exchange Board of India (Sebi) on November 6 introduced Flexi- Cap Fund category, providing relief to mutual funds after issuing new rules for Multi-Cap funds in September.
"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 said in its statement.
Under the new category, the scheme should have a minimum investment of 65 percent of total assets in equity and equity-related instruments, while it is an open-ended dynamic equity scheme investing across large-cap, mid-cap, small-cap stocks, the regulator added.
The AMC shall ensure that a suitable benchmark is adopted for the Flexi-Cap Fund, Sebi said.
"We heartily welcome the Sebi circular on Flexi-Cap Category. Continuing its investor empowerment through 'true to label' philosophy, Sebi had proposed minimum allocation to large-cap, mid-cap and small- cap stocks in multi-cap category," Nilesh Shah, Group President and Managing Director at Kotak Mahindra Asset Management Company said.
Keeping in mind the potential disruption in existing multi-cap equity funds, Sebi has created Flexi-Cap category which provides flexibility of allocation to any capitalisation, he added.
Sebi in September issued a new circular, stating that in multi-cap funds should allocate at least 25 percent of their portfolios to each of large-cap, mid-cap and small-cap stocks by February 2021.
Earlier, there were no such market-capitalisation-wise restrictions on multi-cap funds. Generally, mutual funds allocate 70-80 percent of money into large-cap stocks under multi-cap fund category and the rest in mid-cap and small-cap stocks. But Sebi felt that such allocation wasn't being true to label.
For easy identification by investors and in order to bring uniformity in names of schemes for a particular category across mutual funds, the scheme name shall be the same as the scheme category, said Sebi.
Now the 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.
For example, Kotak Standard Multicap Fund will move towards Flexi-Cap category after taking requisite approvals and following due process, said Nilesh Shah.
Except for the name of the fund which will be renamed as Kotak Standard Flexi-Cap Fund, everything else viz. fund manager, investment process and fund portfolio will remain the same as before, he added.
The mutual funds can launch the scheme under the Flexi-Cap Fund category with effect from the date of this circular, i.e. November 6.
"This is a very good decision by the regulator in the interest of investors who want complete flexibility in ownership of companies across market cap buckets. Investors would rely more on the fund managers' capabilities and decisions to decide market cap bias. This also would give flexibility to managers to make investment decisions basis their conviction on the companies irrespective of their market caps," Akhil Chaturvedi - Associate Director & Head of Sales at Motilal Oswal Asset Management Company said.
"Since this a new category which is getting created, most multi-cap funds may get their schemes reclassified into flexi-cap category. Further, multi-cap category is an additional option available to managers as product option which will be managed as per market cap ceilings prescribed by Sebi," he added.