Multi-cap mutual fund category modified! SEBI issues new guidelines

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Updated: Sep 12, 2020 10:17 AM

The categorization helps to diversify the underlying investments of Multi-Cap Funds across the large, mid and small-cap companies.

 MF Investor, Multi-cap mutual fund, SEBI, guidelines, large, mid and small-capThe Minimum investment in equity and equity-related instruments has now been fixed.

The equity allocation in a mufti-cap mutual fund across companies with varying market capitalization will soon change. SEBI has already issued guidelines regarding categorization and rationalization of Mutual Fund Schemes but in order to diversify the underlying investments of Multi-Cap Funds across the large, mid and small-cap companies and be true to label, SEBI has decided to partially modify the scheme characteristics of Multi-Cap Fund.

The Minimum investment in equity & equity related instruments – 75% of total assets in the following manner:

  • Minimum investment in equity & equity related instruments of large-cap companies – 25% of total assets
  • Minimum investment in equity & equity related instruments of mid cap companies – 25% of total assets
  • Minimum investment in equity & equity related instruments of small cap companies – 25% of total assets

All the existing Multi Cap Funds shall ensure compliance with the above provisions within one month from the date of publishing the next list of stocks by AMFI, i.e. January 2021

As per the earlier categorisation, in a Multi-Cap Fund, the Minimum investment in equity & equity related instruments is to be 65% of total assets investing across large cap, mid-cap, small-cap stocks. Now, the minimum allocation in large-mid-small cap companies have been defined.

In order to ensure uniformity in respect of the investment universe for equity schemes, the definition of large-cap, mid-cap and small-cap as follows:

a. Large Cap: 1st -100th company in terms of full market capitalization
b. Mid Cap: 101st -250th company in terms of full market capitalization
c. Small Cap: 251st company onwards in terms of full market capitalization

The move is expected to help investors who invest in multi-cap funds with the objective of pure diversification. As the AMC will now have to invest at least 25 per cent across large-cap, mid cap and small cap companies, the risk of being overweight on any one kind of market-cap firms decrease.

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