New Flexi-Cap Category Allowed For Mutual Funds In India By SEBI

After the confusion caused by the recent change in fund allocation in multi-cap category mutual funds, the Securities and Exchange Board of India (SEBI), on Friday, introduced a "Flexi-Cap Fund" category in mutual funds.

These schemes will have to invest at least 65 percent of the total corpus in equities and equity-related instruments, across large, mid and small-cap stocks. However, unlike multi-cap funds, there will be no restrictions on how much could be allowed to a certain market cap category.

The market regulator said that the circular comes into effect immediately, and said that fund schemes under the category should include the title "flexi cap" in their names.

Mutual funds have been given 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.

It is possible that since a new category has been created, most multi-cap funds may want to get reclassified as Flexi-cap.

In September, SEBI announced new portfolio allocation rules for multi-cap equity mutual funds that have made it mandatory for these funds to have at least 75 percent of its asset allocation in equity and equity-related investments compared to the current 65 percent requirement.

Further, the fund will have to invest a minimum of 25 percent of their portfolio each in large-cap, mid-cap and small-cap companies.