Sebi moves to restrict inflows into small- and mid-cap mutual funds
01/03/2024
new delhi, fab 29: India's market regulator has asked money managers to consider restricting one-off investments from clients in small- and mid-cap stock mutual funds and cut commissions offered for their sale, two sources with direct knowledge of the matter said.
The Securities and Exchange Board of India (Sebi) communicated this to the money managers in a meeting earlier this month, the sources, who included a regulatory official, said. The regulator did not specify the quantum of flows it wants restricted, they said.
Sebi's communication shows heightened regulatory concern on the surging inflows into Indian small- and mid-cap mutual funds and any potential ripple effects on the financial system if investors suddenly started to yank their money from them. In India, small-cap stocks are defined as those with market capitalisation of less than Rs 5,000 crore ($603.05 million) while mid-cap stocks are those with market values of between Rs 50 crore and Rs 20,000 crore. Small- and mid-cap stocks are generally less liquid compared to their large-cap peers.
Assets managed by small-cap funds in India vaulted 86.5 per centover a 10-month period to Rs 2.48 trillion ($29.92 billion) as of end-January and mid-cap funds jumped 58.5 per centto Rs 2.9 trillion . Their assets were not much lower than the Rs 2.99 trillion managed by large cap funds. The Nifty small-cap 100 index has surged 74 per centover the past 52 weeks and the Nifty mid-cap 100 index is up 60.86%, as of Wednesday's close. Those gains far exceed the benchmark Nifty's 26.21 per centrise over the same period. "A nudge to institutional investors such as mutual funds will help soothe extraordinary exuberance building up particularly in small and mid-cap stocks," the regulatory official said.
Sebi did not respond to an emailed request for comment.
The market regulator's communication to money managers about one-off investments is not an official order. The industry has in the past almost always complied with messages from Sebi.
India's mutual fund assets have grown significantly over the years as investors have bought systematic investment plans that make regular contributions towards their portfolios. But domestic investors are also increasingly pumping in one-off, or lumpsum, funds to take advantage of the soaring stock market
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