On Friday when SEBI announced the changes in multi-cap composition, there was quite a furore created. SEBI stipulated that multi-cap funds must have a minimum of 25% each invested in mid caps and small caps. Here are some things to understand.
· Markets are expecting a Rs.40,000 sell-off from large caps and an equivalent buying into mid caps and small caps. However, this may not exactly happen.
· Mutual funds are looking for various alternatives to avoid this kind of basket selling of large caps and basket buying of small and mid caps; where liquidity is a major concern.
· One option in front of mutual funds is to merge multi-cap schemes with large-and-mid cap schemes, where there is greater leeway for allocation.
· Another option is that such multi-cap schemes can be converted into thematic schemes that do not have any such restrictions. However, that may impact retail demand.
· The third option is inter-scheme transfer of stocks, with the mid-cap stocks being partially re-allocated to mid-cap fund and so on.
· MFs also have the option of renaming the multi-cap funds as flexi-cap funds which are more dynamically managed and do not have such restrictions on asset mix.
· AMFI’s Nilesh Shah has clarified that funds have time till end of Jan-21 to implement this change, so any strategy response will be calibrated and thought through.
In a nutshell, it does not look like there could be a rush to buy mid cap or small cap stocks so investors should not count too much on that kind of sentiments in the market.
On Friday when SEBI announced the changes in multi-cap composition, there was quite a furore created. SEBI stipulated that multi-cap funds must have a minimum of 25% each invested in mid caps and small caps. Here are some things to understand.
· Markets are expecting a Rs.40,000 sell-off from large caps and an equivalent buying into mid caps and small caps. However, this may not exactly happen.
· Mutual funds are looking for various alternatives to avoid this kind of basket selling of large caps and basket buying of small and mid caps; where liquidity is a major concern.
· One option in front of mutual funds is to merge multi-cap schemes with large-and-mid cap schemes, where there is greater leeway for allocation.
· Another option is that such multi-cap schemes can be converted into thematic schemes that do not have any such restrictions. However, that may impact retail demand.
· The third option is inter-scheme transfer of stocks, with the mid-cap stocks being partially re-allocated to mid-cap fund and so on.
· MFs also have the option of renaming the multi-cap funds as flexi-cap funds which are more dynamically managed and do not have such restrictions on asset mix.
· AMFI’s Nilesh Shah has clarified that funds have time till end of Jan-21 to implement this change, so any strategy response will be calibrated and thought through.
In a nutshell, it does not look like there could be a rush to buy mid cap or small cap stocks so investors should not count too much on that kind of sentiments in the market.