SEBI tightens investment norms for Multi-cap Funds

SEBI tightens investment norms for Multi-cap Funds

SEBI tightens investment norms for Multi-cap Funds

Market regulator, SEBI introduced new investment norms for the Multi-cap Funds. Initially, Multi-cap funds formerly known as Mutual funds of a category that invests in a mix of other caps like, Large-cap, Small-Cap, and Mid-cap stocks. As of the news, the SEBI inquired Multi-cap funds to invest a minimum of 25% of their portfolio each in. This is the first and mandatory rule for multi-cap investors. Moreover, the fund managers will have to decrease their percent of investment in Large-cap. Moreover, increase holdings in the other two categories of funds.

Furthermore, the Securities and Exchange Board of India assigned a due date for making changes in holdings. It said that the fund managers should increase small and mid-cap holding in Multi-cap schemes by the end of January 2021.

For this reason, market analysts expected that a rally will occur in mid and small-cap stocks.

According to the new rules by SEBI, Mutil-cap schemes will have to invest up to 75% in equities and the remaining 25% in each large, mid, and smallcap stocks. At present, the minimum equity allocation stood at 65%. Anyhow, the Mid and small-cap investors will observe the prices of their holding increase by the accelerated buying in mid and small-cap stocks. 

The Fund managers believe that the Multi-cap schemes of Mutual fund houses will choose stocks that they are comfortable with. Moreover, the fund houses will increase their portfolio in existing stocks, according to the portfolio allocation rules.

Multi-Cap Schemes As of 30th August 2020

Multi-Cap Funds
Scheme Name Assets Under Management (cr)
Kotak Std Multicap Fund 29,714
HDFC Equity Fund 19,798
Motilal Oswal Multicap 35 11,740
Aditya Birla SL Equity Fund 11,023
UTI Equity Fund 10,983

According to the source, the mutual fund has already been invested in a few mid-cap stocks namely AU small finance bank, Jubilant Food Works, SRF. Also, Bharat Electronics, Ramco Cements, TVS Motors, Voltas, Crompton Greaves Consumer Electricals, RED,  Power finance corporation. These are the most active existing holding by the mutual funds.

However, the experts felt that these stocks may observe fresh buying interest by the asset management companies.

Coming to the Small-Cap stocks, Fund houses will invest in stocks that have a market cap between Rs 3,000 crore to Rs Rs 7,000 crore.

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