Posted on February 22, 2025, by Niftynews
The mid and small cap stocks, which had outperformed large cap stocks throughout most of FY24, are currently facing a sharp sell-off. As of 2025, the Nifty Small Cap 100 index has dropped by 18%, and the Nifty Midcap 100 has fallen by 13%. Both indices have seen a nearly 25% decline from their September 2024 peaks, signaling growing caution among investors due to concerns of an economic slowdown and mounting trade tensions.
Sebi Chairperson Comments on Mid and Small Cap Market Slump
Mid- and small-cap stocks have faced significant declines in 2025. The Nifty Small Cap 100 has fallen 18%, while the Nifty Midcap 100 dropped 13%.
Sebi Chairperson Madhabi Puri Buch addressed this issue, stating that there is no need for further commentary. She referred to earlier warnings in March 2024 about potential risks in these market segments.
At an AMFI event, Buch introduced key initiatives, including Chhoti SIP, Tarun Yojana, and MITRA. These aim to enhance financial inclusion and help track forgotten mutual fund investments.
Buch also discussed the rise of thematic funds. She emphasized that mutual funds in India are mature enough to make independent decisions in a fluctuating market.
Regarding distributor malpractices, Buch assured that any wrongdoing would lead to AMCs being held accountable. She also reiterated that promotional schemes linking SIPs to returns, like Swiggy Money, are prohibited.
Sebi Chairperson Madhabi Puri Buch Addresses Mid and Small Cap Slump
Securities and Exchange Board of India (Sebi) Chairperson Madhabi Puri Buch addressed these concerns, asserting that there is no immediate need for Sebi to comment on the current market downturn. Speaking at an event in Mumbai, she referred to her earlier warnings from March 2024 when she raised alarms about potential market bubbles in the mid and small-cap sectors. At that time, Sebi had highlighted the risk of overheating and urged mutual funds to adopt a unified policy to protect investors. Sebi had also mandated stress tests for mutual fund trustees to assess how quickly portfolios could be liquidated during volatile conditions. Buch reiterated, “When the regulator felt the need to make a statement, it was made. Today, we don’t feel the need for further comments.”
Impact of Mid and Small Cap Market Slump on Investors
The mid and small-cap market meltdown has sparked increased investor scrutiny, but Sebi has so far refrained from introducing any new measures beyond its previous guidelines. Despite the ongoing sell-off in the mid and small-cap segments, Buch emphasized that Sebi‘s regulatory stance has not changed. The volatility in these sectors has sparked increased investor scrutiny, but Sebi has so far refrained from introducing any new measures beyond its previous guidelines.
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Sebi Regulatory Actions and Financial Market Transparency
At the event hosted by the Association of Mutual Funds in India (AMFI), Madhabi Puri Buch discussed several regulatory measures aimed at ensuring stability in India’s financial markets. She emphasized that the mutual fund industry in India is mature enough to make independent decisions on issues like introducing new investors and ensuring that products are sustainable. Sebi believes that asset managers have the responsibility to protect investor interests, which eliminates the need for direct regulatory intervention.
Buch also noted the rise of thematic mutual fund schemes, attributing their increase to the absence of clear regulatory limits on the products and the opportunity for regulatory arbitrage between regular schemes and new fund offers (NFOs). In response to concerns over excessive fund launches, Sebi has introduced a mandate requiring asset managers to deploy funds within 30 days of launching an NFO.
Sebi’s Stance on Distributor Malpractices
Buch also addressed concerns about distributor malpractices within the mutual fund sector. She stressed that any wrongdoing by mutual fund distributors would lead to accountability for the Asset Management Companies (AMCs) involved. She also reiterated that promotional incentives like Swiggy Money linked to SIP completions were strictly prohibited. “Assurances of returns are not allowed,” she added, clarifying that no one can guarantee returns on Systematic Investment Plans (SIPs).
AMFI Initiatives: Promoting Financial Literacy and Investor Recovery
During the event, AMFI launched three significant initiatives: Chhoti SIP, Tarun Yojana, and MITRA. These initiatives are designed to:
- Promote financial inclusion,
- Encourage young people to invest,
- Assist investors in recovering forgotten mutual fund investments.
Tarun Yojana aims to boost financial literacy by training school teachers to act as financial ambassadors. The initiative will assess students’ financial knowledge, with top performers receiving an SIP investment of ₹100 per month for 24 months. This pilot project will begin in nine districts and cover 5,000 students before expanding nationwide.
The MITRA initiative focuses on helping investors and their families recover unclaimed mutual fund holdings, providing a much-needed service in an increasingly digital investment landscape.
Conclusion: Sebi Role in Protecting Investors Amidst Market Volatility
Sebi cautious approach to the recent market volatility in mid and small cap sectors reflects its long-term focus on investor protection. The regulatory body remains committed to ensuring that the market functions efficiently and transparently, even as market conditions continue to evolve. By promoting financial literacy through initiatives like Tarun Yojana and MITRA, Sebi is working to create a more informed and secure investment environment for all.
