SEBI's Timely Directive Amidst Market Fluctuations
Ninad RamdasiCategories: DSIJ_Magazine_Web, DSIJMagazine_App, Editorial, MF - Editorial, Mutual Fund
In the past week, mid-cap and small-cap dedicated funds have experienced underperformance compared to large-cap funds, marking a notable shift after a prolonged period. In the last one-year, broader indices-based funds have hugely outperformed large-cap funds.
In the past week, Mid-Cap and Small-Cap dedicated funds have experienced underperformance compared to Large-Cap funds, marking a notable shift after a prolonged period. In the last one-year, broader indices-based funds have hugely outperformed large-cap funds. One contributing factor to this volatility is a recent directive issued by the Securities and Exchange Board of India (SEBI), aimed at conducting thorough assessments of small-cap and mid-cap fund portfolios. The directive mandates an evaluation of liquidity, volatility, and alignment with benchmarks, among other key metrics.
This proactive scrutiny forms part of SEBI's broader efforts to moderate inflow rates, ensure portfolio rebalancing, and safeguard the interests of all investors, particularly those who remain invested following early redemptions by others.
SEBI's intervention underscores its commitment to investor protection amidst mounting concerns over potential irrational exuberance, notably within small and mid-cap stocks. The regulatory body has outlined specific measures for asset management companies and fund managers, advocating for a strategic approach to managing inflows and adapting portfolios accordingly. This guidance conveyed through an internal memo from the Association of Mutual Funds in India (AMFI) to mutual fund trustees, emphasises the importance of mitigating risks associated with the first-mover advantage in redemption scenarios.
The call for action comes amid an apparent surge in retail investor interest in mid and small-cap mutual fund schemes since the beginning of 2023. These schemes have delivered remarkable returns during this period, attracting substantial capital inflows, with actively managed small-cap funds and mid-cap funds drawing Rs 37,360 crore and Rs 19,400 crore, respectively, in the current financial year up to January 2024.
I firmly believe that SEBI's directive has arrived at an opportune moment, aiming to ensure that the prevailing market enthusiasm does not translate into disproportionate risks for investors. Thus, upholding the integrity and stability of the mutual fund industry.
Shashikant Singh
Executive Editor