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The Economic Times
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| 21 September, 2020, 04:38 AM IST | E-Paper


    'Sebi is right on multi-cap funds'

    Multi-cap funds gained currency with investors out of disillusionment with mid-cap and small-cap funds, which they have realised can be stomach-churning volatile.

    Should you switch from multi cap to large & mid cap funds?

    ETMutualFunds.com regularly asks mutual fund advisors and financial planners every...

    Should you stop your SIP in multi cap mutual funds?

    Some mutual fund advisors are indeed asking their clients to hold on to their investments...

    • In the absence of clarity on which multi cap funds will continue being in the category and how the new norms would impact returns, investment advisors are recommending clients to consider other equity categories such as large- and mid-cap funds or focussed funds.

      Investors must wait for fund houses themselves to take action, as the extent of changes may not be as drastic as is being considered.

      According to industry estimates, 19 out of the 33 schemes in the multi-cap category have assets of less than Rs 1,000 crore. A study of the portfolios of these 19 schemes shows that they hold 11% in small caps on an average.

      Large & mid cap mutual fund category was the first victim of Sebi’s strict categorisation norms that were introduced three years ago. Many mutual fund advisors struggled to explain the large & mid cap category, mandated to invest 35% each in large cap and mid cap stocks.

      The move is expected to force fund managers of multi cap schemes to bring down their exposure to large cap stocks and move money to small caps and mid caps.

      According to the new norms, a multi cap scheme will have to invest a minimum of 75% of their total assets in the equity and equity-related instruments.

      The Securities and Exchange Board of India (Sebi) clarified late on Sunday that mutual funds are free to choose the way by which they want to comply with the revised investment rules for multi-cap funds such as merger or conversion to a different scheme.

      The new Sebi norms will make multi cap mutual fund schemes riskier than they are now. According to the new norms, multi cap schemes are mandated to invest 75% of the total assets equally divided between stocks in three market capitalisations.

      Do not take any immediate decision - to exit/reduce/switch - on your multi-cap funds. It is better to wait for more clarity on how each fund house is planning to handle this transition and then decide on a case to case basis.

      These fund managers are only acutely aware of the frequent disruptions in recent years—on account of demonetisation, the introduction of GST, trade wars and more— and how these have reshaped business environment.

      “We will not recommend multicap funds till clarity emerges. We will allocate money to other categories such as a mix of large, large and mid, or small cap based on investor needs,” says Amol Joshi, Founder, Plan rupee Investment services.

      The market regulator’s clarification came on the back of its Friday order that said, by January 2021, all multi-cap funds should have at least 75% of its corpus in equities — up from 65% earlier — to be equally invested in large-, mid- and small-cap stocks.

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    The Economic Times