Goodwill Investor Education Initiative: 14th Sep 2020
MARKETS News:
SEBI’s New guidelines to MFs on their Investments; Its impact on Stocks: A study:
The Capital market Regulator on Friday 11th Sep 2020 has issued an important guideline to regulate more of MF industry to reduce the risk and to protect the investors to a larger extent. We will see herein the details and its impact on Equity counters.
SEBI’s guidelines is that by January 2021, all multi-cap funds should have at least 75% of its corpus in equities — up from 65% earlier — to be equally invested in large-, mid- and small-cap stocks. “achieve the desired objective of true to label and appropriate benchmarking”.
“Apart from rebalancing their portfolio in the Multi Cap schemes, they could inter-alia facilitate switch to other schemes by unit holders, merge their Multi Cap scheme with their Large Cap scheme or convert their Multi Cap scheme to another scheme category, for instance Large cum Mid Cap scheme.”
The clarification paves the way for mutual funds to go ahead with their plans to look at options such as merger of multi-cap funds into large- and mid-cap schemes or conversion of the existing product into thematic schemes. Sebi clarifies multi-cap funds are free to choose any route to comply with its Friday circular.
Securities and Exchange Board of India clarified on Sunday evening that mutual funds are free to choose the route for complying with the revised norms on multi-cap funds. On Friday, the capital markets regulator had directed multi-cap funds to invest at least 25% of their corpuses each in large-cap stocks, mid-caps and small-cap stocks, resulting in protests by the MF industry.
On Sunday, Sebi said, “Apart from rebalancing their portfolio in the Multi Cap schemes, they could inter-alia facilitate switch to other schemes by unit holders, merge their Multi Cap scheme with their Large Cap scheme or convert their Multi Cap scheme to another scheme category, for instance Large cum Mid Cap scheme.”
The clarification paves the way for mutual funds to go ahead with their plans to look at options such as merger of multi-cap funds into large- and mid-cap schemes or conversion of the existing product into thematic schemes.
Multi-cap schemes have invested majority of the corpus in large-cap stocks. The mutual fund industry is not in favour of multi-cap schemes raising exposure to small-cap stocks on the grounds that the rush to buy them would be detrimental to unit holders of these schemes. Fund managers in these schemes have preferred blue-chips or larger mid-cap stocks of late because they are in a better position to weather the economic slump than smaller companies.
This new norm is being viewed by some MFs as an interference in their judgement and decision making (as MFs are responsible for satisfying the investors) but the SEBI norm will certainly give a fillip to mid cap and small cap counters over a period of time as many of them despite a fair performance and potential are slogging out for long without much turnover/volume and market cap rise. The MFs also will pick up some of the strong counters in mid cap and small cap category leading to a boost in their prices.
So investors are advised to pick up some strong midcap and small cap counters as they are likely to go up in the recent future trading/transactions and derive gains.
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