Purpose: In India, a small group of equity fund managers managed a large, fast-growing corpus of household savings. When these managers herded, prices drifted from value, and the market turned fragile. The Indian regulator has periodically reset fund rules, which forced managers to take identical trades. This raised a key question: was herding rule-enforced or manager-chosen? Design/Methodology/Approach : To separate the two, this study used the October 2017 rule change, which redefined market-capitalization categories and scheme mandates, forcing many managers to rebuild portfolios through 2018. Herding was measured from monthly holdings of 372 open-ended equity mutual fund schemes, 2013 to 2024, using a bias-corrected structural measure. Each trade was then split into flow-driven and discretionary parts.

Findings: Fund managers herded heavily, at about 18% overall. Though the rule change forced nearly ` 24,000 crore of buying, mostly in mid-caps, it did not raise herding. Herding was instead mostly a matter of choice: 17.5% in chosen trades against only 6.6% in flow-driven trades. Large-cap-mandated mutual funds held almost the same stocks, with an average overlap of 0.70. Practical

Implications: Herding arose from how mutual fund mandates were designed and how managers were rewarded, not from regulatory rule changes. Softening rule changes did not reduce it. Fund managers who held large-cap mandated schemes were less diversified than they appeared. Originality/

Value: This study is a novel attempt to separate forced from chosen herding using portfolio holdings of Indian equity fund managers.

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