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SEBI introduces a flexi-cap category in mutual funds

The investment mandate of the flexi-cap category is effectively similar to the previous mandate of multi-cap funds

SEBI introduces a flexi-cap category in mutual funds

Securities and Exchange Board of India (SEBI) has introduced a new category, flexi-cap, in mutual funds. As per the circular, mutual funds in this category need to invest at least 65 per cent of the portfolio in equities. However, there is no restriction in terms of allocation to market capitalisation range and they can dynamically shift across large-, mid- and small-cap. So, effectively, the new category is how SEBI used to define the multi-cap category until it changed the category's mandate.

On September 11, SEBI issued a circular informing about the change in the mandate of multi-cap funds. According to the new guidelines, multi-cap funds need to allocate 25 per cent of the portfolio to each-large, mid and small-cap stocks, increasing the minimum equity allocation to 75 per cent. Fund houses have been given time until January 2021 to make the required changes in the portfolios of their multi-cap funds. The new mandates of multi-cap funds are quite restrictive and have been criticised. But this new category will hopefully put an end to the criticism.

Many funds are likely to switch to the flexi-cap category in order to retain their current portfolios and investment style. In that case, investors will only see a change in the fund category and possibly, in the fund's name.