MF Update: SEBI may widen the scope of large cap and mid cap stocks
The stock market regulator Securities and Exchange Board of India (SEBI) is expected to revise the definition of the scope of large cap, mid cap, and small cap stocks. On October 06, 2017, SEBI had issued a circular, titled "Categorization and Rationalization of Mutual Fund Schemes." Along with the definition of the different categories of mutual funds, SEBI had also defined the scope of large cap, mid cap, and small cap stocks.
The circular stated that in terms of market capitalization, 1st to 100th company, to be termed as large cap stocks, from 101st to 250th company to be termed as mid cap stocks, and from 251st company onwards to be termed as small cap stocks. As of now, mutual funds must follow this definition and have stock in a portfolio, accordingly. This list is uploaded on the Association of Mutual Funds in India (AMFI) website and the same is updated every six months based on the data at the end of June and December of each year.
Although investors expressed their concern that more money is moving towards a few stocks due to the current scope of large cap, mid cap, and small cap stocks. Hence, SEBI might consider revising the scope of the large cap from the top 100 companies to the top 150 companies. For mid cap, the scope may get revised from 101st - 250th to 151st – 300th and for small cap stocks, it may get revised from 251st company onwards to 301st company onwards, in terms of market capitalization.
A few experts, however, believe that the concern is not valid, as the SEBI norms do provide any kind of flexibility. For instance, in case of large cap MFs, they need to invest a minimum of 80 per cent of their assets in the top 100 companies and the rest can be invested as per the discretion of the fund. Even in case of mid cap and small cap funds, they need to invest a minimum of 65 per cent of their assets in mid cap stocks and small cap stocks, each, and the rest can be invested as per the fund’s discretion. Experts believe that the rally in select stocks might have raised this concern. Nonetheless, it would be interesting to see whether SEBI revises the scope.