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Mutual funds oppose 10% single stock cap rule

June 1, 2009

Mutual fund houses are demanding the removal of 10% cap on investment of equity schemes funds in a single stock or any other equity related instruments.

Some of the fund houses have requested Securities and Exchange Board of India (SEBI) to modify the said rule. The move comes on account of hindrance of the rule from going forward on higher investment in Reliance Industries shares in the current rally.

The weightage of the Reliance Industries in the S&P Nifty has gone up by 2% in the current year. The stock has almost doubled since March 2009 against the Nifty gaining just over 70%.

Some of the fund managers said that their funds have underperformed Nifty by around 1-2% due to increased weightage of Reliance Industries and the further growth in the company’s business may result in another rise in its weightage in the index.

Meanwhile, index funds and sectoral funds are not required to follow the 10% cap rule, as they mainly invest in those stocks which represent the index or a particular sector.

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