Securities and Exchange Board of India (SEBI) has given a green signal to the introduction of a flexi cap category in mutual funds. Schemes in this category are required to invest at least 65% of their corpus in equity. Unlike the new multi cap funds, there is no restriction in terms of allocation to any market cap.
In September, SEBI came up with new rules for multi-cap funds, which are required to invest at least 25% of the corpus in large-cap, mid-cap and small-cap each. It raised concerns among industry players over the possibility of existing multi-cap funds being forced to buy mid-cap and small-cap stocks despite these segments not having the liquidity to absorb large flows from MFs. After the circular was issued, the Association of Mutual Funds in India (AMFI), asked SEBI to create a new flexi-cap category, which will not have such stipulations.
Existing schemes will be able to reclassify themselves. However, this constitutes a change in attributes, and such schemes will have to give investors a 30-day window to exit, without any exit load.