Mutual Fund News : SEBI Introduces a new Flexi-cap Funds Category for Mutual Funds

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The market regulator SEBI has introduced ‘Flexi-cap category’ for mutual funds that allows funds to follow a flexible investment mandate.

Under the new Flexi-cap category, the funds will need to invest at least 65% of the assets in equities, without any restrictions on investment allocation in large cap, mid cap, or small cap stocks.

This has come after SEBI in the month of September 2020, framed new allocation rules for multi-cap funds and asked them to invest at least 25% of the corpus each in large caps, mid caps, and small cap stocks.

Notably, many mutual fund houses had raised concerns about the risk in investing 25% allocation each in mid and small cap stocks, due to liquidity and valuation concerns.

Following the new mandate for multi-caps funds, the mutual funds houses through Association of Mutual Funds in India (AMFI) had rolled out a proposal to SEBI for creation of a new flexi-cap category.

The SEBI has mentioned in the circular that "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 in terms of Regulation 18(15A) of SEBI (Mutual Funds) Regulations, 1996,".

With this some multi-cap funds that are currently having pre-dominant allocation to large cap stocks will consider opting for recategorisation into flexi-cap funds.

Unlike the new mandate for multi cap funds, there will be no restriction in terms of allocation to any market cap for funds classifying themselves under flexi-cap funds.