SEBI asks small and mid-cap funds to disclose more about risks to investors

Subject: Economy

Section: Financial markets

Context:

India’s market regulator has asked the country’s asset managers to give investors more information about the risks associated with their small and mid-cap funds, according to a fund manager and two people with knowledge of the matter.

More on news:

The Securities & Exchange Board of India (SEBI) has also been reviewing stress tests conducted by such funds.
Small and mid-sized funds have seen high inflows, causing concern among authorities about how they would hold up in the event of a sharp market selloff.
Heavy inflows have sent the Nifty small cap 250 index surging 71 per cent over the past 52 weeks and lifted the Nifty midcap 100 index 64 per cent.
That far exceeds the benchmark Nifty’s 28 per cent rise.
Mutual funds tend to keep between 1 percent and 5 percent of their assets as cash as a prudent measure to meet outflows, according to public documents.
There is, however, no minimum regulatory requirement.

Definitions of various Caps:

Small-cap stocks are defined as those with market caps of less than 50 billion rupees .
Mid-cap stocks are those with market values of between 50 billion and 200 billion rupees.
Large-cap stocks are usually well-established and dominant companies in their respective industries as their market capitalisation is over Rs. 20,000 crores(200 Billion rupees).
The term “cap” in large-cap refers to market capitalization.