Kotak Standard Multicap, HDFC Equity Fund need big portfolio shift as Sebi tweaks rules

SEBI has created a buzz by changing portfolio allocation rules for multi cap mutual funds. Multi cap funds which at present can invest across market cap at the discretion of the fund manager will not be allowed to do that after January end next year. The new rules require them to invest a minimum of 25% of their assets each in large cap, mid cap and small cap stocks. Consequently, the need would arise for a major shift by various mutual fund schemes in their allocation to mid- and small-caps. The two largest funds in the category - Kotak Standard Multicap Fund and HDFC Equity Fund would need a major shift to mid caps and small cap stocks if thy do not opt for reclassification of the schemes to some other category or merger, shows a report by Anand Rathi.

Kotak Standard Multicap Fund the biggest multi cap fund manages an AUM of ₹29,714 crore, HDFC Equity Fund, the second largest fund manages assets worth ₹19,798 crore.

At present, most multi cap funds are large cap biased. Kotak Standard Multicap Fund holds around 70% of its portfolio in large caps and HDFC Equity Fund has over 80% in large cap stocks.

The report by Anand Rathi, gives out the names of top 10 multi cap mutual fund schemes which need a major change in their portfolio allocation. Here's the list:

Additional mid cap allocation needed by multi cap mutual fund schemes

Multi cap scheme name, Additional mid cap allocation needed ( ₹bn)

HDFC Equity Fund , 31.5

Motilal Oswal Multicap 35 Fund , 31.5

Kotak Standard Multicap Fund , 18.5

Axis Multicap Fund , 14.3

Franklin India Equity Fund , 10.6

SBI Magnum Multicap Fund , 8.1

ICICI Prudential Multicap Fund , 6.6

Aditya Birla Sun Life Equity Fund , 4.1

Parag Parikh Long Term Equity Fund , 3.9

Nippon India Multi Cap Fund , 2.6

Additional small cap allocation needed by multi cap mutual fund schemes

Multi cap scheme name, Additional small cap allocation needed ( ₹bn)

Kotak Standard Multicap Fund, 71.2

HDFC Equity Fund , 41.7

Motilal Oswal Multicap 35 Fund , 22.9

UTI Equity Fund , 22.1

Aditya Birla Sun Life Equity Fund , 19.5

SBI Magnum Multicap Fund , 17.4

Axis Multicap Fund , 16.1

Franklin India Equity Fund , 15.4

ICICI Prudential Multicap Fund , 9.1

DSP Equity Fund , 7.2

Mutual Funds are allowed to reclassify themselves into some other category or merge with another scheme. This might result in lower allocation to mid caps and small cap stocks.