India’s markets regulator has asked mutual funds to take steps to protect investors in small- and mid-cap plans amid concern that some parts of the nation’s $4.5 trillion stock market have become overly exuberant.
The Securities and Exchange Board of India(Sebi) has prescribed measures, such as potentially moderating flows into such funds and safeguarding unit holders from sudden redemptions, according to a letter sent to fund houses by the Association of Mutual Funds in India on Feb.27 and seen by Bloomberg News. Final decision on what measures to implement are left to the funds.
A spokesperson at the mutual fund body declined to comment, while calls made to Sebi’s media office went unanswered.
The MSCI India Mid Cap Index tumbled 1.8% on Wednesday in its biggest drop since late December. Small- and mid-sized stocks have powered the record rally in Indian shares in the past year, with funds focused on this segment witnessing a 67% surge in assets to 5.3 trillion rupees ($63 billion) last month compared to a year earlier, according to AMFI data.
Sebi Chairperson Madhabi Puri Buch in January said the regulator is stress-testing such funds to gauge their resilience in the event of sharp market declines or sudden redemptions.
“There’s a strong possibility that many funds will be influenced to pause lumpsum investments in these segments for sometime,” said Abhilash Pagaria, an analyst at Nuvama Wealth Management Ltd. “SIP flows shouldn’t be impacted,” he said, referring to recurring monthly investment plans.
Kotak Asset Management Co. this week imposed limits on flows on recurring plans in its small-cap fund, citing the sharp surge in this segment that has led to “valuation distortions” in some cases.
Fund houses have 21 days to implement the policy, according to the letter.
The Securities and Exchange Board of India(Sebi) has prescribed measures, such as potentially moderating flows into such funds and safeguarding unit holders from sudden redemptions, according to a letter sent to fund houses by the Association of Mutual Funds in India on Feb.27 and seen by Bloomberg News. Final decision on what measures to implement are left to the funds.
A spokesperson at the mutual fund body declined to comment, while calls made to Sebi’s media office went unanswered.
The MSCI India Mid Cap Index tumbled 1.8% on Wednesday in its biggest drop since late December. Small- and mid-sized stocks have powered the record rally in Indian shares in the past year, with funds focused on this segment witnessing a 67% surge in assets to 5.3 trillion rupees ($63 billion) last month compared to a year earlier, according to AMFI data.
Sebi Chairperson Madhabi Puri Buch in January said the regulator is stress-testing such funds to gauge their resilience in the event of sharp market declines or sudden redemptions.
“There’s a strong possibility that many funds will be influenced to pause lumpsum investments in these segments for sometime,” said Abhilash Pagaria, an analyst at Nuvama Wealth Management Ltd. “SIP flows shouldn’t be impacted,” he said, referring to recurring monthly investment plans.
Kotak Asset Management Co. this week imposed limits on flows on recurring plans in its small-cap fund, citing the sharp surge in this segment that has led to “valuation distortions” in some cases.
Fund houses have 21 days to implement the policy, according to the letter.