The Securities and Exchange Board of India (Sebi) on Friday created a new category called “Flexi Cap Fund” under the equity schemes of mutual funds.

This comes after the market regulator had issued a circular last month on multi-cap funds where it stipulated that they must have a minimum corpus of 75 per cent invested in equities, of which 25 per cent each should be in large cap, mid-cap and small cap companies.

Fund managers were worried that the poor liquidity of small and mid-cap stocks would sharply increase the risk for investors investing in these schemes.

In a circular on Friday, Sebi said to give more flexibility to mutual funds, a new category named “Flexi Cap Fund” under equity schemes will be available. At least 65 per cent of their assets will have to be invested across large-cap, mid-cap and small-cap stocks, but there will not be any minimum investment cap as in multi-cap schemes.

Moreover, Sebi added that mutual funds will have the option to convert an existing scheme into a flexi cap fund, subject to compliance with the regulations.

Debt funds

Sebi also made it mandatory for debt mutual fund schemes to hold at least 10 per cent of their net assets in liquid assets. Besides, it mandated debt schemes to conduct stress testing.