SEBI / Multicap Mutual Fund: Market regulator Security and Exchange Board of India (SEBI) has changed the rules for asset allocation for multi cap mutual funds.
SEBI/Multicap Mutual Fund
The market regulator Security and Exchange Board of India (SEBI) has changed the rules for asset allocation for multicap mutual funds. According to the new rules, now 75 per cent of the funds will be required to invest in equity, which is currently a minimum of 65 per cent. According to the new rules of SEBI, the structure of multi-cap funds will change. Funds will be required to invest 25-25 per cent in midcap and smallcap. In this way it will be necessary to put 25 per cent of the total amount in the large cap. Earlier there was no limit on this. Know what will be the impact of this decision on investors and fund houses.
Let me tell you that earlier fund managers used to allocate according to their choice. At present, largecap weight is more in multicap. This new rule will be applicable from January 2021. The AUM of the multi-cap fund is Rs 1.46 lakh crore. Multicap is the second-largest equity MF category. According to the SEBI circular, all existing multicap funds have to follow the rules. Schemes have to comply with the rules of the regulator within a month of the release of a new list of large, mid and smallcap shares by Amfi, an association of mutual fund companies, in January 2021.
Why SEBI changed multicap rules?
SEBI says that its motive is that multicap funds should not be just multicap names. Actually, only largecap shares have a higher weightage in multicap funds. In some multicaps, up to 80 per cent investment was in large caps, in some schemes the investment in small caps was zero or extremely low. In such a situation, this scheme cannot be called a multi-cap scheme in any sense. Due to these reasons, small companies have difficulty in raising capital from the market, SEBI wants small companies to get opportunities like big companies.
Although this will be a convenience
However, SEBI has said that mutual funds can rebalance multi-cap funds. They will also have the option to switch to another scheme. They can give this option to unitholders. Mutual funds can merge multicap with a large cap scheme. Multicap funds can also be converted into other categories.
What is the effect on fund houses?
Currently, multicap schemes are free to choose sectors and market cap. In multicap schemes, the fund manager has the option and they keep increasing the investment in large, mid and smallcap stocks in the portfolio as per the requirement. This flexibility will end once the new rules come into effect. With this, fund managers will have to maintain investments in shares of a particular market cap. Then whether they are performing or not.
What will be the effect on asset allocation
Currently, multicap funds have total assets of about 1.46 lakh crore. Of this, 69 per cent is invested in large caps and 31 per cent in others. With the implementation of the new rule, around 40,500 crore rupees will be sold in the large cap. 12,959 crore will come in the midcap. 27,689 crores will also come in the small cap. That is, buying in midcap and smallcap stocks will increase and they can also be expensive.
What do investors do?
Niveyaks are being advised to wait by experts. They say that asset allocation will change after this rule. Exposure to midcap and smallcap will increase. Most fund houses will have to buy in midcap and smallcap. In such a situation, the midcap and smallcap will increase, but the risk will increase already. However, Niveyaks should wait instead of taking any decision in haste.
(Input to BIP Fincap Consultants Private Limited Director AK Nigam as well)
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