On Friday, November 9, 2020, SEBI, through a circular, announced the creation of a new mutual fund category. The new category has been named Flexi-Cap. This was a widely anticipated move after the uproar over the proposed changes to the multi-cap fund category.
In this blog, we will tell you everything, including why this new category has been launched, it’s investment mandate, and what it means for investors
Flexi-cap Category: The next chapter in the Multi-Cap Category Saga
If you have been following the news, you would be aware that on September 11, 2020, SEBI had issued new guidelines on how multi-cap funds should be managed.
The crux of the proposed changes to the multi-cap category was they would have to, from January 31, 2021, invest a minimum of 25% each in large, medium, and small caps. This took away the flexibility these funds had. We had covered this topic in detail, including the rationale SEBI has given and the possible repercussions of these.
What followed was many discussions around this new rule and how these might be detrimental both for the investors and the markets. SEBI seems to have acknowledged these issues and launched this new category.
Flexi-Cap Category Funds: Where can they invest?
As per the SEBI circular, Flexi-cap funds will have to have a minimum of 65% of their assets in equity and equity-related investments. There is no cap on how much these funds can or need to invest in large, mid, or small caps. This is the same investment mandate multi-cap funds had earlier.
What does this mean for Muli Cap investors?
This is good news for investors in this category. Apart from announcing this new category, SEBI has also given liberty to AMCs to convert their existing funds into this category. Some fund houses have already declared they will exercise this option and move their current multi-cap funds to this new category and have the term Flexi-cap mentioned in their name (as per regulation). Almost all others are likely to follow.
Since this will be a fundamental change in the schemes, existing investors of these schemes will be given a mandatory 30-day window where they can redeem without paying any exit load (if applicable).