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Kotak Mahindra Asset Management Company (AMC) is all set to launch a multi-cap fund. The new fund offer (NFO) for the scheme will run from 8 to 22 September. 

Kotak Mahindra AMC had classified its existing fund -- Kotak Standard Multicap Fund – as a flexi-cap fund, following a circular by markets regulator Securities and Exchange Board of India in September 2020.

Sebi had laid down that multi-cap funds must invest at least 25% of their assets in large-cap, mid-cap, and small-cap companies respectively rather than allowing the fund manager to set this allocation. The balance 25% can be allocated as per the fund manager’s choice. This gave rise to apprehensions about existing multi-cap funds being forced to buy mid- and small-cap stocks to meet the new regulations. The regulator sought to allay such fears in November 2020 by introducing a new category called flexi-cap where the fund manager would have the freedom to allocate and move between asset classes. Kotak Mahindra AMC moved its standard multi-cap scheme to the flexi-cap category, creating a gap for a multi-cap fund in the Kotak Mahindra AMC basket of offerings.

According to a Kotak Mahindra AMC presentation, its proprietary model suggests allocation between large, mid and small companies using factors such as mean reversion and momentum indicators. This model has outperformed the Nifty Multicap 500 in 11 out of the last 15 calendar years, on a backtest. 

The model currently prescribes a 26-31% allocation to large caps, 37-42% to mid-caps and 32-37% to small-caps, as of August 2021. However, looking back, the model has suggested a large-cap allocation of 48% most of the time (61% of the time). The model suggested a mid-cap overweight in periods such as July 2013 and September 2019 and small-cap overweight in periods such as December 2008 and March 2020 when the first wave of covid-19 pandemic struck India. 

The new scheme will be benchmarked against the S&P BSE 500 50:25:25 Total Returns Index. It will be managed by Harsha Upadhyaya and Devender Singhal for equity, Abhishek Bisen for debt and Arjun Khanna for overseas investments.

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