Sebi multi cap fund rules may push ₹41,000 crore to mid and small cap stocks1 min read . Updated: 12 Sep 2020, 06:26 AM IST
- A multi cap fund will have to invest at least 25% of its portfolio each in large, mid and small cap stocks
- Sebi also increased minimum equity allocation for a multi cap fund from 65% to 75%
Sebi on Friday tweaked the rules of underlying investments in multi cap equity mutual funds. As per the Market Regulator’s new rules, a multi cap fund will have to invest at least 25% of its portfolio each in large, mid and small cap stocks. Sebi also asked this category to invest a minimum of 75% of its portfolio in equities. The fund managers have to comply with the new portfolio allocation rules in one-month time period of Amfi putting out the next list of stocks in December. At present, multi cap funds must invest at least 65% in equities without any restriction of the market cap. They can invest across the market cap at the discretion of the fund manager. Most multi cap funds have traditionally been run with a large cap bias with around 60-75% portfolio in large cap stocks, some multi cap went higher with almost 90% of their assets in large caps.
The latest Sebi rules will cap this freedom and of course, the multi cap funds will have to re-balance their portfolio as per the new rules. They will need to reduce their large cap holdings and increase their mid and small cap holdings. As per the quick data run by analysts, these latest rules will led to an outflow of over ₹40,000 from large cap stocks to mid caps and small cap stocks.
"The new allocation requirements will need AMCs to reallocate ₹40,700 crore from large cap stocks to mid caps ( ₹13,000 crore) and small caps ( ₹27,700 crore). This will put tremendous buying pressure on small cap counters," says Kaustubh Belapurkar, Director – Manager Research, Morningstar India.
Kaustubh Belapurkar adds the big question is " Would these smaller companies be able to absorb the buying that is going to happen now as fund managers adjust their portfolios? Execution will be crucial to manage the impact costs.
Sebi defines top 1 to 100 companies on the basis of market capitalisation as large cap stoc, 101st to 250th companies as mid caps and 251st onwards as small cap stocks.