{"id":38545,"date":"2020-10-09T17:16:01","date_gmt":"2020-10-09T11:46:01","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=38545"},"modified":"2022-09-05T16:11:16","modified_gmt":"2022-09-05T10:41:16","slug":"amendments-in-the-multi-cap-funds-sector","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/amendments-in-the-multi-cap-funds-sector\/","title":{"rendered":"Amendments in the Multi Cap Funds Sector"},"content":{"rendered":"

Securities and Exchange Board of India (SEBI), regulator of capital market<\/a>, on September 11, 2020, issued a circular and brought changes to Multi cap funds. In this article we will discuss multi cap scheme briefly and know the changes introduced in this scheme.<\/p>\n\n\n\n

Definition of Large cap, Mid cap and Small cap Companies<\/h2>\n\n\n\n

SEBI defined Large cap, Mid cap and Small cap Companies, vide its circular issued on 6th<\/sup> October 2017, in order to ensure uniformity in respect of the investment universe for equity mutual fund schemes<\/a><\/strong>. Moreover, SEBI has stipulated that Association of Mutual Funds in India shall prepare the lists of stocks in this regard.<\/p>\n\n\n\n

Large Cap<\/strong><\/td>As per SEBI, 1st<\/sup> to 100th<\/sup> company in terms of full market capitalisation <\/td><\/tr>
Mid Cap<\/strong><\/td>As per SEBI, 101st<\/sup> to 250th<\/sup> company in terms of full market capitalisation<\/td><\/tr>
Small Cap<\/strong><\/td> As per SEBI, from 251st<\/sup> company in terms of full market capitalisation<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Accordingly the Association of Mutual Funds in India, in consultation with Securities and Exchange Board of India and Stock exchanges, has prepared the list of stocks based on the data provided by the Bombay Stock Exchange, National Stock Exchange and Metropolitan Stock Exchange of India.<\/p>\n\n\n\n

What are Multi cap Funds?<\/h2>\n\n\n\n

These are diversified mutual funds that can invest in the stocks across market capitalization. These funds resort to portfolio gyrations commensurate with the market condition.<\/p>\n\n\n\n

These funds invests in companies with different market capitalization, fund manager average out the return from investing in various companies (large cap, mid cap and small cap) as per the returns. <\/p>\n\n\n\n

Changes brought by SEBI in Multi Cap Funds<\/h2>\n\n\n\n

The changes that has been brought by the Securities and Exchange Board of India<\/strong><\/a> is in line with an earlier circular dated 6th<\/sup> October 2017 Categorization and Rationalization of Mutual Fund Scheme with an objective of true to label scheme that is the portfolio should reflect the scheme name and the name should correctly reflect the nature of the scheme.<\/p>\n\n\n\n

Investment in<\/td>Large Cap<\/td>Mid Cap<\/td>Small Cap<\/td>Total<\/td><\/tr>
Present<\/td> <\/td> <\/td> <\/td> <\/td><\/tr>
Equity<\/td>No Limit<\/td>No Limit<\/td>No Limit<\/td>65% Minimum<\/td><\/tr>
Proposed<\/td> <\/td> <\/td> <\/td> <\/td><\/tr>
Equity<\/td>25% Minimum<\/td>25% Minimum<\/td>25% Minimum<\/td>75% Minimum<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

The table made above clearly states that after improvising changes in the multi cap scheme allocating 25% funds into each large cap, mid cap and small cap category would now correctly reflects the nature of scheme by diversifying funds across the sector in equal proportion.<\/p>\n\n\n\n

The circular is issued by the SEBI as it gives exposure to mid cap\/small cap stocks and their growth, larger portion of funds which earlier were allocated to large cap are now balanced equally among large cap, mid cap and small cap stocks.<\/p>\n\n\n\n

The time limit provided to the fund houses to bring about the change in the present allocation to the new allocation of 25% each is up to January 31st<\/sup> 2021, in continuation of circular of September 11, SEBI issued one more circular on September 13 2020<\/strong>[1]<\/strong><\/a><\/sup> which clarified that mutual funds have many options in order to meet the requirement depending on the unit holder preference apart from Re-balancing the portfolio that are as mentioned below:<\/p>\n\n\n\n