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SEBI Introduce ‘Flexi Cap Fund’ as a New Category under Equity Schemes; Debt MFs to hold 10% corpus in liquid assets

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Sebi introduces flexi cap category in mutual fundsOn November 6, 2020  In order to give more flexibility to the mutual funds,  Securities and Exchange Board of India (SEBI) introduced  ‘Flexi Cap Fund’ as a New Category under Equity Schemes.

Aim– To protect the interests of investors in securities, to promote growth and to regulate the securities market.

Points to be Noted:

i.SEBI has made it mandatory for all open-ended debt mutual fund schemes(with exception) to hold at least 10% of their net assets in liquid assets.

ii.SEBI has also decided to conduct stress testing to all open  ended  debt  schemes(with exception).

‘Flexi Cap Fund’ under Equity Schemes will be available with the following scheme characteristics

i.With this Flexi Cap Fund the Schemes should have minimum investment  of 65% of total assets in the equity & equity related instruments.

ii.It is an open-ended dynamic equity scheme that invests in large, mid or small cap company stocks, i.e., there is no restriction in terms of allocation to any market cap.

Key Info

i.Asset Management Company (AMC) shall ensure that an appropriate criteria is  adopted for the Flexi Cap Fund.

ii.The name of the scheme shall be the same as the scheme category, so as to bring uniformity in names of schemes  for  a  particular  category  across  Mutual  Funds(MF) and for investors to easily identify it.

iii.There is an option to the mutual fund to convert the existing scheme into Flexi  Cap Fund, in accordance with the requirement  for  change  in  fundamental attributes  of  the  scheme in  terms  of  Regulation  18(15A)  of  SEBI  (Mutual Funds) Regulations, 1996.

Regulations

SEBI introduced ‘Flexi Cap Fund’ as a new category under equity schemes in exercise of its powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, under Regulation 77 of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.

Background:

i.In September, 2020 SEBI, has Modified Multi-Cap Mutual Funds Category.

ii.As per the new rule the multi cap funds have to invest at least 25% of their portfolios across large-cap, mid cap and small cap stocks.

iii.Many of the fund houses have raised concerns about the risk in investing 25% in mid and small cap stocks.

iv.They had also demanded the formation of a flexi cap category.

v.The decision was taken into account on the recommendations of Mutual  Fund   Advisory Committee(MFAC).

All open ended debt schemes to hold  at least 10% of their net assets in liquid assets; Mandated Stress Testing: SEBI

At least 10% of net assets in liquid assets

i.SEBI has also made it mandatory that all the open ended debt schemes, except Overnight Fund, Liquid Fund, Gilt Fund and Gilt Fund with 10 year constant duration to hold at least 10% of their net assets in liquid assets.

ii.Currently a minimum 20% in liquid assets are required to be held by liquid schemes. Even so, other debt oriented schemes have no such requirement.

iii.For this purpose, the  ‘liquid assets’ will include Cash, Government Securities, T-bills and Repo on Government Securities.

iv.This decision was made to increase the  liquidity  risk management framework for all open ended debt schemes.

v.From February 1, 2021, the guidelines on holding certain percentages in liquid assets will come into effect.

Conduct  stress  testing

i.On the basis of the recommendations of MFAC, SEBI has decided to conduct  stress  testing for all the open  ended  debt  schemes  (except  overnight scheme).

ii.The provisions on stress testing will become applicable from December 1, 2020

What are Multi Cap Funds?

The Multi cap funds is a diversified mutual fund which can invest in stocks across market capitalisation. Their portfolio consists of large cap, mid cap and small cap stocks. It gives flexibility to fund managers to make changes in the portfolio as market conditions change.

Suitable-Investors who look to invest money for at least  3-4 years and look for high returns.

Recent Related News:

i.On August 7, 2020, the Securities and Exchange Board of India (SEBI) amended the clause 4 (2) of SEBI international financial services centre (IFSC) guidelines, 2015 pertaining to eligibility criteria and shareholding limit for clearing corporations that wish to operate in such centres.

ii.On July 10, 2020, Securities and Exchange Board of India (SEBI), the regulator of the securities and commodity market in India, has reconstituted the committee advising it on matters related to regulation and development of the mutual fund industry by including five new members.

About Securities and Exchange Board of India (SEBI):

Established– On April 12, 1992, in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
Chairman– Ajay Tyagi
Headquarters– Mumbai, Maharashtra