“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…,” read SEBI’s 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 stated.
“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.
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.
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.
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