Over the last six months, the BSE Midcap has surged from the 14,800+ range to above 17,000, a rise fuelled by both institutional and domestic investors buying over the past months. Now, SEBI's new directives may channel even more investment into the sector. The regulator has said that mid- and small-cap equity funds will need to have minimum of 65% exposure to mid- and small-cap stocks, respectively.

According to the SEBI note, mutual funds are required to have only one scheme for the categories of multi-cap, large-cap, mid-cap, small-cap, while index funds/ETFs, funds of funds and sectoral funds have no such limitation.  CLSA Asia Pacific, on examining the updated regulations, predicts an additional investment of around Rs. 19,300 crore to flow into mid-cap companies through mutual fund schemes a a result. 

By Appaiah