Industry body Association of Mutual Funds in India (AMFI) has issued a statement on late Sunday welcoming Securities and Exchange Board of India’s (Sebi) clarification on asset allocation guidelines for multi-cap schemes. It said that the industry is committed to follow Sebi’s regulations in letter as well as spirit and would abide by getting the scheme’s portfolio to reflect the true nature of the scheme.
“AMFI is grateful to Sebi for its open door policy for a dialogue. AMFI will gather feedback from members and revert for non-disruptive execution of multi-cap funds portfolio balancing,” it said in a press statement. AMFI added that given the flexibility now offered by Sebi to facilitate switching to other schemes or merger of schemes, appropriate portfolio changes will accordingly happen in an orderly fashion.
On Friday, Sebi directed multi-cap funds, the portfolio of which are dominated by large-cap stocks, to keep at least 25% of their assets each in large-, mid- and small-caps by 31 January. Fund managers said a strict reassignment of assets could trigger massive inflows into mid- and small-cap stocks, reducing the market skew towards large-cap stocks.
The market regulator on Sunday outlined the options available to fund managers to comply with rules on how investments should be spread across assets even as the industry raised apprehensions about the challenges in implementing the new portfolio rebalancing norms for multi-cap funds. Sebi said it will examine proposals by the industry to ensure managers of multi-cap funds stick to the mandate of investing substantially across a wide section of firms. “Apart from rebalancing their portfolio in multi-cap schemes, they could inter-alia facilitate a switch to other schemes by unitholders, merge multi-cap scheme with large-cap scheme or convert multi-cap scheme to another scheme category, for instance, large cum mid-cap scheme,” Sebi said.
Sebi’s new regulation on multi-cap scheme is widely expected to enhance liquidity from large to mid and small-cap stocks as fund managers may rejig their portfolio to meet the asset allocation norm.
“As per rough estimates there are some 35 multi-cap funds having asset under management (AUM) of ₹1.45 lakh crore. Out of AUM corpus of multi-cap funds 17% is into mid-caps and 9% is into small-caps. Assuming there is no reclassification of schemes and if funds have to meet the new regulation of having minimum 25% into mid-caps and 25% into small-caps then roughly ₹13,000 crore should flow into mid-caps and ₹25,000 crore should flow into small-caps. Assuming the same thesis of no reclassification there could be outflows of ₹38,000 crore from large-caps,” Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities said.