Sebi chief Ajay Tyagi on Tuesday said the markets regulator is not forcing anyone to invest in small-caps and investment should always be in the interest of investors amid new portfolio allocation rules for multi-cap mutual fund schemes.
He further said the recent framework that directs multi-cap mutual fund schemes to invest at least 25 per cent of their corpuses each in large-cap stocks, mid-caps and small-cap stocks would ensure that such schemes remains "true to label".
Earlier, there was no restriction on the investment that multi-cap schemes needed to make in large, mid and small-cap stocks and therefore majority of the multi-cap funds have run with a large-cap bias.
Sebi's new portfolio allocation rule for multi-cap schemes raised concerns among the mutual fund industry and fund managers estimated that the move would result into Rs 30,000-40,000 crore moving out of large-cap to mid-cap and small-cap companies.
"Multi-cap form should be as per their name. We are not forcing anyone to invest in these caps (small-cap, mid-cap) and investment should be in the interest of investors," Tyagi said while addressing industry body Amfi's 25th annual general meeting.
According to him, improper categorization of mutual fund schemes will only lead to confusion amongst investors apart from the possibilities of mis-selling.
He further said scheme category and its performance vis-a-vis benchmark are major inputs based on which investors decide whether to invest in a scheme or not.
"If a scheme portfolio is not true to its label, it might be giving very different risk return exposure to the unitholders of the scheme than what they have signed up for," he added.
Sebi's norms for categorization of mutual fund schemes have two objectives - the scheme portfolio should reflect the name of the scheme and the scheme performance can then be compared against an appropriate benchmark.
"The funds need to keep their scheme portfolios true to their label," he added.
Tyagi further said Sebi has received representations from the Association of Mutual Funds in India (Amfi) on the multi-cap schemes and the regulator will take a call on the suggestions given by the industry body.
According to him, protecting the interest of investors is the primary duty of mutual funds, and thus all decisions that funds take on behalf of investors should be taken keeping in mind the best interest of investors.
With regards to market, Tyagi said uncertainty in markets continue to prevail although steps taken by RBI and Sebi have helped in reducing the volatility.
Despite uncertain times, the overall fund raising through the capital markets during this financial year has been quite encouraging, Tyagi said.
The overall funds raised up to September 18, 2020 were Rs 5 lakh crore, which comprises Rs 1.46 lakh crore in equity and Rs 3.54 lakh crore in debt securities.
"This is particularly important since corporate India needed to build a cushion of capital to absorb the COVID-19 shock and the markets have lent full support to help them do that," he added.
On the upfront margin norms, he said some challenges were faced in the first week of September, but now those have stabilised and markets have well adjusted to the new normal.
"We have observed that margins are collected in pool account, and funds of one investor are used for others as well as proprietary account leading to brokers default in recent times. This issue has been addressed by the new upfront margin norms, and there are no plans to have a relook at it," he said.