As per the orders of Securities and Exchange Board of India (Sebi), almost all mutual funds have initiated to divide and set boundaries for their particular funds to categorize them to make sure that there will be no further duplication. Such a wise move by the Securities and Exchange Board of India has also ensured that the categorization is consistent across different fund houses.

Before these categorization and Sebi’s fund demarcating policies, there were big dissimilarities in the definitions of a large cap or a mid-cap fund. And most of the fund houses have an array of schemes in each category which makes it very difficult for investors and even advisors to compare the schemes. But after the categorization of the funds, these things will no longer be a challenge and products will be much simpler and easily accessible.

“The categorization of the funds has not even made the things simpler but there has been a noticeable impact on the performance of the funds as well”, said one of the govt officials. Regarding this, there have been some concerns that whether large and mid-cap funds will see lower alpha potential going forward. Besides this Indian fund managers have a consistent track record on the same.
One of our sources said that “One reason is that India is a stock-pickers market with a large dispersion amongst stocks where there are very few companies that are able to maintain growth and performance at par, but those that do are always rewarded by shareholders.. On the other hand, there are lots of companies that may do well temporarily, but destroy value over the long term”.

Retail traders have traditionally ruled India’s stock markets. Retailers focus more on short-term bets, as compared with investors who have the ability to take a long-term view based on fundamental analysis and plays long-term bets. This being one of the reasons behind hiking of stock prices in the market present opportunities to the disciplined long-term investors. Now it won’t be possible for some of the alpha to come from funds taking bets beyond their mandate. But that number is negligible as compared to the genuine fund manager alpha.
After following Securities and Exchange Board of India’s (Sebi’s) fund demarcating policies there are now fixed lists of stocks that will come under large caps and mid caps respectively. This thereby will precise the investment market. Considering label funds, nothing much has been changed for now.