Sebi may tweak norms to allow more flexibility to equity fund managers

In October 2017, Sebi came out with the scheme classification norms to ensure that mutual fund schemes make investments in-line with their stated scheme mandate

2 min read Last Updated : Jan 08 2020 | 2:13 AM IST

The Securities and Exchange Board of India (Sebi) is considering changing scheme categorisation norms to allow more flexibility to equity fund managers when managing their large- and mid-cap portfolios.

According to sources, fund houses have approached the market regulator to widen the universe of stocks that are currently categorised as large-caps and mid-caps.

"Sebi is consulting mutual fund houses to understand the challenges. This would help mutual funds (MFs) limit unnecessary churn of stocks to fall in-line with the updated list of stocks, issued every six months," said the chief executive of a fund house.

Under the existing norms, the top 100 companies by market value fall in the large-cap bracket, the next 150 are tagged as mid-caps, and the remaining stocks are part of the small-cap universe. Association of Mutual Funds in India (Amfi) prepares a list of stocks every six months for each of these baskets, according to the definitions laid out by the regulator.

MF executives have requested Sebi to consider adopting a framework that takes into account a company's contribution to total market capitalisation, rather than sticking to a specific set of companies in the large- and mid-cap universe.

"This would allow the market to expand beyond a ranking-based system that is bound by a specific number of companies," the executive added.

In October 2017, Sebi came out with the scheme classification norms to ensure that mutual fund schemes make investments in-line with their stated scheme mandates.

YES Bank, Vodafone Idea off large-cap list

YES Bank and Vodafone Idea can come under further selling pressure from large-cap mutual fund schemes, as these stocks were taken off the large-cap list by Amfi in its recent ranking of companies on the basis of their six-month average market capitalisation. The other stocks removed from the large-cap list were Indiabulls Housing, New India Assurance, and Cadila Healthcare. MFs will have to re-balance their portfolios based on the new categorisation.