SEBI AMENDMENTS ON ASSETS ALLOCATION OF MULTI CAP FUNDS
SEBI vide it’s circular no. SEBI/HO/IMD/DF3/CIR/P/2020/172 dated 11th September, 2020 has revised the asset allocation criteria of Multi-Cap Funds in India wherein it had stated that AMCs have to invest at least 75% of the assets of the scheme in the Equity investments as per the below criteria:
1. The minimum investment in equity & equity related instruments of large-cap companies – 25% of total assets
2. The minimum investment in equity & equity related instruments of mid-cap companies – 25% of total assets
3. The minimum investment in equity & equity related instruments of small-cap companies – 25% of total assets
All AMCs are required to comply with these guidelines for their Multi-Cap Funds within one month from the date of publishing the next list of stocks by AMFI, i.e. January 2021.
Erstwhile the criteria of definition and asset allocation criteria of Multi Cap funds were governed by the SEBI circular no. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017 as per which AMCs was required to invest a minimum 65% of AUM size in Equity & Equity related instruments, and the fund manager had the liberty to choose allocation to small-cap, Mid Cap and Large Cap companies as per his discretion.
1. Multi-Cap funds: These are those set of funds that invest across all companies i.e Large Cap, Mid Cap, and Small Cap.
2. Large- Cap Companies: Securities and Exchange Board of India (SEBI) defines large-caps as the largest 100 companies in terms of market capitalization.
3. Mid-Cap Companies: As per the SEBI, mid-caps comprise of companies ranging from 101 to 250 in terms of market capitalization.
4. Small-Cap Companies: According to SEBI, all companies from the 251st company in terms of market capitalization can be considered as small-cap stocks.
As per the existing circular of SEBI on assets allocations under the category of Multi-Cap Funds category, the fund manager was free to choose the asset allocation as per his wisdom, the fund managers of Multi-Cap Funds were running these schemes more or less akin to the large-cap funds.
Multi-Cap Funds managed by the largest AMCs of India are having exposure in Large Cap Companies as high as up to 90%, which needs to be reshuffled by the AMCs, if the above circular is not withdrawn by the SEBI.
The below table depicts the size of Mid Cap Funds, Size of Small-Cap Funds, % of Large Cap Stocks held under these schemes, etc. as per the monthly portfolio disclosure by AMCs as on 31.08.2020.
|S.No.||Name of AMC||Size of Multi Cap Fund (Rs. In Cr)||Existing % of Large Cap Stocks||25% of Multi Cap Funds (Rs. In Cr)||Size of existing Small Cap Funds (Rs. In Cr)|
(Source: Monthly portfolio disclosed by the AMCs as on 31.08.2020)
Key impacts which the circular might have on the industry:
Time will unfold how AMCs which were running the Multi-Cap funds akin to the Large Cap Funds, will comply with the circular as it might require major reshuffling in the portfolio of Multi-Cap schemes, they need to invest huge amount approximately 40-50% size of the small-cap funds to larger than the size of the small-cap fund they are running at the time or the SEBI will withdraw the circular.
Written by- CA Kanj [email protected]