SEBI Halts Motilal Oswal Microcap Fund Inflows Over Liquidity, Benchmarking Concerns

• SEBI has stopped fresh inflows into the Motilal Oswal Nifty Microcap 250 Index Fund due to concerns about product classification, benchmarking, and liquidity.
• A key issue is the lack of a formally recognized microcap category under SEBI or AMFI norms, making such schemes potentially untenable.
• The fund initially received fast-track approval but faced increased scrutiny amid concerns about froth in the microcap segment.
• SEBI also flagged the absence of a recognized benchmark aligned with its classification framework, potential "true-to-label" risks, and inherent liquidity constraints in microcaps.
• Motilal Oswal's scheme is currently the only microcap index fund; existing investors retain normal redemption access while discussions continue.

Why It Matters: SEBI paused inflows into Motilal Oswal's microcap fund due to regulatory classification, benchmarking, and liquidity issues.