The market regulator is concerned about the rising valuations and plans to provide investors with full risk profiles of schemes.
Sebi has urged Amfi to advise mutual fund houses to be cautious with mid and small-cap schemes due to the current steady rise in stock prices and significant valuation increases.
The P/E ratios of both mid and small-cap indices have surged recently, raising concerns for the market regulator. Fund managers have been in discussions with fund houses regarding the high valuations and heightened investor excitement in these sectors for several months now.
Insiders revealed that the market regulator has instructed fund companies to offer investors a thorough analysis of different crucial risk factors when they invest in these schemes.
The fund manager, who preferred to remain anonymous, mentioned that various factors such as portfolio concentration (top 10 and top 5 stocks), single investor exposure to the scheme, liquidity issues in case of sudden redemptions, and portfolio composition across large, mid, and small caps including ratios like Sharpe ratio, will now be provided to investors in a single document at the time of investment to ensure they are fully informed about the risks involved.
The decision to enforce additional guidelines such as a temporary increase in exit load has been delegated to fund houses. Both fund managers and analysts have expressed concerns about the high valuations in the mid and small-cap segments for some time now.
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