The Securities and Exchange Board of India (SEBI) released a circular on Friday related to the detailed portfolio structure for multi-cap funds. Such schemes must invest at least 25% of their portfolios in large-, mid- and small-caps each.
Large-cap stocks are publicly listed entities that have the largest 100 stocks by market capitalization, mid-caps as the next largest 150 stocks. Small-cap are all the stocks below the top 250 in size.
In this regard, in order to diversify the underlying investments of Multi Cap Funds across the large, mid and small-cap companies and be true to label, SEBI decided to modify the scheme characteristics of Multi Cap Fund.
Minimum investment in equity & equity related instruments -75% of total assets in the following manner:
- Minimum investment in equity & equity related instruments of large-cap companies- 25% of total assets
- Minimum investment in equity & equity related instruments of mid-cap companies – 25% of total assets
- Minimum investment in equity & equity related instruments of small-cap companies – 25% of total assets
“The new circular makes multi-cap funds more true to label. These funds are currently overwhelmingly large-cap, making the distinction between the two categories a marginal one; on average, multi-cap funds currently allocate 70% of their portfolios to large-cap stocks, 22% to mid-cap stocks and just 8% to small-cap stocks”, said Swarup Mohanty, CEO, Mirae Asset Mutual Fund.
SEBI vide circular no. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017, had issued guidelines regarding categorization and rationalization of Mutual Fund Schemes.
All the existing schemes will have to ensure compliance with the circular by January 2021, within one month of the Association of Mutual Funds in India (AMFI) publishing the new list of large-, mid- and small-cap stocks in January 2021.
