SEBI may tweak norms to ease MF investments in small/mid-cap stocks

SEBI is likely to relax norms with regard to mutual fund investments in small and mid-cap stocks, during its upcoming board meeting on February 17.

The markets regulator will make it easier for fund managers to pick stocks in the small- and mid-cap segments, sources told BusinessLine .

Curbs on inflows

In 2018, SEBI issued norms on re-categorisation of mutual fund schemes and put out certain criteria that made it difficult for fund managers to invest large sums of money in many small- and mid-cap companies.

SEBI defined large-caps as the first 100 stocks by market-cap, mid-caps as those from 101 to 250, and small-caps as stocks below 251, with half-yearly updates.

With this, the pool suddenly became smaller and mutual funds put curbs on inflows into small- and mid-cap schemes. Almost all the large fund houses put curbs on accepting money in small- and mid-cap schemes.

SEBI will relax these norms to include more stocks under the small- and mid-cap category, a source said.

SEBI Chairman Ajay Tyagi, who completes his term in February and is eligible for another term, had announced a few days ago that the market regulator would re-classify small- and mid-cap schemes.

Restricting investment

Mutual fund managers had complained to the regulator that its norms were restrictive and had taken away their flexibility to invest in the small- and mid-cap segment.

After SEBI’s norms came into effect in 2018, the small- and mid-cap stocks witnessed a massive fall of 60-80 per cent, as mutual funds had to re-adjust their portfolios.

Most stocks are yet to recover from this fall.

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