The Securities and Exchange Board of India (SEBI) has directed mutual fund houses to establish a framework to safeguard investors who have invested in smallcap and midcap schemes, citing concerns over a “froth building up” in these market segments. The regulator has suggested measures such as imposing restrictions on inflows, portfolio rebalancing, and implementing guidelines to protect investors from the potential advantage of redeeming investors.
SEBI’s communication to the Association of Mutual Funds in India (AMFI) on Tuesday urges the industry body to inform trustees of all mutual fund houses to formulate a policy ensuring the protection of investors in smallcap and midcap schemes.
Given the strong inflows into small and midcap schemes in recent quarters, SEBI emphasizes the need for “appropriate” and “proactive measures” by Asset Management Companies (AMCs) and fund managers to safeguard investors. The regulator calls for a comprehensive framework that goes beyond moderating inflows and rebalancing portfolios.
As market dynamics evolve and concerns about overheating in certain segments arise, SEBI’s move is aimed at reinforcing investor protection and maintaining the stability and integrity of the mutual fund industry in India.
