Is it true that Axis Mutual Fund has already shifted all its multi-cap funds to the flex-cap category? Do you also see other funds following suit?

In the light of the SEBI directive on multi-cap schemes, Axis Mutual Fund has gone ahead and renamed all its multi-cap schemes and moved them to a new flexi-cap category. In fact, SEBI had introduced the flexi-cap category to give an option to multi-cap fund managers an option so as to give a much clearer picture of the risk of the fund to unit holders.

Under the new classification norms, these flexi-cap funds will not be constrained by market cap restrictions and there will be no compulsion to own at least some percentage of large cap, small cap and mid cap stocks. In a flexi-cap fund, the fund only describes the outer limit range of how much it will allocate to large caps and has total flexibility on the rest.

It may be recollected that in Sep-20, SEBI had passed new rules under which all the multi-cap funds had to maintain minimum 25% allocation in large-caps, mid-caps and small-caps respectively. However, they could use discretion for the last 25%. The idea was that most of the multi-cap funds were becoming virtually large cap funds in the guise of multi-caps.

Had Axis Multicap Fund not converted, it would have had to increase its midcap exposure by 14.3% and small cap exposure by 16.1%. That would be pretty tough in a market where mid caps and small caps are not only overpriced but also extremely illiquid and there is a shortage of quality paper in the market. Most other funds would also follow suit.