The September 11 circular of industry regulator Securities and Exchange Board of India (SEBI) – mandating Multi Cap Funds to allocate at least 25 per cent of their portfolios in substantial-, mid- and little-caps every single by February 2021 – has raised issues amongst the stakeholders in the Mutual Fund (MF) Industry.
This is since at present, Multi Cap funds of most Asset Management Companies (AMCs) have majority of asset allocation in substantial-caps, moderate allocation in mid-caps and negligible allocation in higher-threat little-caps.
The important concern is that the little-cap space does not have scope to allocate 25 per cent of Multi Cap assets of all the AMCs and forced investments in worthless organizations may possibly place the investors’ cash in even higher threat.
Moreover, selecting little-cap stocks demands thorough study of the targetted firm, business, and so forth and also demands excellent investment talent, which quite handful of fund managers have. So, forcing the fund managers of all the Multi Cap funds would improve the threat profile of this category.
Realising the constraints, the SEBI had issued one more circular, explaining that, apart from rebalancing their portfolios, AMCs may possibly facilitate the current unitholders to switch from Multi Cap schemes to schemes of other categories and/or merge the schemes beneath Multi Cap category with the schemes beneath other categories like Large Cap or Large cum Mid Cap categories.
Multi Cap Funds: SEBI offers alternatives right after leaving MF players confused
To facilitate preserving flexibility of such funds to invest in stocks across substantial-, medium- and little-caps with no fixed allocation, the Association of Mutual Funds in India (AMFI) had requested the industry regulator to introduce Flexi Cap category, in which the schemes of Multi Cap schemes may possibly be shifted.
Accordingly, the SEBI has announced the introduction of the Flexi Cap Fund category, beneath which, the open ended schemes have to have to allocate minimum 65 per cent of their total assets in the stocks across substantial-, medium- and little-caps.
Akhil Chaturvedi, Associate Director & Head of Sales, Motilal Oswal Asset Management Company, feels that most Multi Cap funds would grab the chance and may possibly get their schemes reclassified into Flexi Cap category.
However, Ajay Sharma, Director & Designated Partner at InvestmentMitra Advisors LLP, thinks that introduction of a lot more categories will not enable the investors significantly.
“While we should practice ‘less is more’, with mutual fund schemes it is happening otherwise. An investor needs to invest in a portfolio of 4-5 schemes. But he has to first pick those 3-5 categories out of dozen odd categories and then within that category has to find schemes that meet his criteria,” stated Sharma.
“Categories like ‘Large & Mid Cap & Multi Cap’ with defined allocation should be removed and it should be left to an investor to balance his investments among market cap in chosen proportion,” he stated.
“It only gives AMCs an opportunity to launch a new scheme without adding much value,” Sharma additional stated.
Giving his opinion on the part of Flexi Cap in offering an escape route to Multi Cap schemes, Sharma stated, “Yes, for sure many AMCs who have large cap heavy portfolios will take advantage of this provision and change their mandate from Multi Cap to Flexi Cap. In a way this will also save markets from undue churning of portfolios.”