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Investing

Sebi’s multi-cap norms: robbed of flexibility, funds have been left high and liquidity-dry

Sebi argues multi-cap funds aren’t ‘true to label’, as they don’t serve the stated objective of diversification in its true sense. When a fund starts growing in size, it naturally gravitates towards large-cap stocks. It’s not a deliberate deviation from the objective. The actual problem lies elsewhere. Low liquidity and other risks make fund houses averse to the small-cap universe.
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16 Sep 2020 9 Mins Read 0 comment
Hercules and Achelous: in the painting Hercules grasps the horns of a bull while pressing his right foot onto its leg. Getty Images
Hercules and Achelous: in the painting Hercules grasps the horns of a bull while pressing his right foot onto its leg.
In a circular on Friday after market hours, the Securities and Exchange Board of India (Sebi) said that under their multi-cap schemes, mutual funds should put a minimum 25% of assets in each category — large-caps, mid-caps, and small-caps. The decision came as a surprise to most market participants. “It was out of the blue, and we
don't make any sense. Align these numbers with how these segments are reflected in the benchmark and not make allocations which are completely misaligned with the benchmark. If that doesn’t happen, multi-caps will be a dead strategy and have to considerably shrink to survive.” Mantri sums up. (With inputs from Pravin Palande) (Graphics by Abdul Shafiq)
In a circular on Friday after market hours, the Securities and Exchange Board of India (Sebi) said that under their multi-cap schemes, mutual funds should put a minimum 25% of assets in each category — large-caps, mid-caps, and small-caps. The decision came as a surprise to most market participants. “It was out of the blue, and we don't make any sense. Align these numbers with how these segments are reflected in the benchmark and not make allocations which are completely misaligned with the benchmark. If that doesn’t happen, multi-caps will be a dead strategy and have to considerably shrink to survive.” Mantri sums up. (With inputs from Pravin Palande) (Graphics by Abdul Shafiq)

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