Shares in broader market rally after Sebi ruling on multicap fund

Shares of mid- and small-cap companies were in demand after the Securities and Exchange Board of India (Sebi) mandated multi-cap funds to invest at least 25% of their portfolios in large, mid and small cap companies.

The S&P BSE MidCap index rose 1.86% to 14,932.98. The index has added 3.39% in three sessions.

Mphasis (up 8.27%), Crompton Greaves Consumer Electricals (up 6.86%), Aditya Birla Fashion and Retail (up 6.50%), Bharat Electronics (up 5.77%) and AU Small Finance Bank (up 5.25%) were the top mid-cap gainers.

The S&P BSE SmallCap index advanced 3.98% to 15,132.77. The index has jumped 5.80% in three sessions.

Multi Commodity Exchange of India (up 14.95%), Blue Star (up 13.71%), ITD Cementation India (up 11.41%), Engineers India (up 11.40%) and Persistent Systems (up 11.14%) were the top small-cap gainers.

Meanwhile, the S&P BSE Sensex rose 291.27 points or 0.75% to 39,145.82.

In a circular dated 11 September 2020, Sebi issued guidelines regarding categorization and rationalization of mutual fund schemes. Sebi said that in order to diversify the underlying investments of 'multi-cap funds', such funds must invest at least 25% of their portfolios in large, mid and small cap companies.

Sebi added that all the existing multi-cap funds shall ensure compliance with the above provisions within one month from the date of publishing the next list of stocks by Association of Mutual Funds in India (Amfi), i.e. January 2021.

Later, Sebi clarified on 13 September 2020, that mutual funds have many options to meet with the requirements of the circular, based on the preference of their unit holders.

"Apart from rebalancing their portfolio in the Multi Cap schemes, they could inter-alia facilitate switch to other schemes by unitholders, 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," Sebi said.

The market regulator added that it is conscious of market stability and therefore has given time to the mutual funds till 31 January 2021 to achieve compliance with the circular, through its preferred route of which rebalancing of the portfolio is only one such route.

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