India Regulator Shows Funds the Way to Meet New Investment Rule
India Regulator Shows Funds the Way to Meet New Investment Rule
(Bloomberg) -- India’s market regulator has allowed mutual funds to choose from options to comply with its investment rules for multi-cap products, putting to rest speculation that the norms could push as much as 400 billion rupees ($5.4 billion) to the broader market.
Money managers can, among other things, merge their multi-cap plans with large-cap funds or convert them to another category like large-and-mid cap products, to ensure they stick to their mandate of investing in a wide set of stocks, the Securities & Exchange Board of India said in a circular on Sunday.
The regulator said market participants had drawn their own conclusions from its order late Friday that mandated multi-cap funds must invest at least 25% of their assets in each of large, mid, and small-cap stocks. Analysts, including Morningstar Investment Adviser, had estimated the ruling would led to 350 billion to 400 billion rupees flowing to the broader market as fund managers recalibrate their portfolios to buy smaller companies.
“The need to incrementally buy mid and small caps would be lowered significantly” if funds opt for the alternatives, JM Financial Research said in a note Monday. Sebi’s Friday ruling “would have had far-reaching ramifications on stock prices, given how thinly traded some of these stocks are.”
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