Multi-Cap Funds After the Change in Assets Allocation by SEBI

Published on: Oct. 29, 2020, 2:47 a.m.| Last on Updated : Nov. 8, 2020, 1:59 p.m. UTC TIME ZONE

Summary


Some facts  about multi-cap funds:
  1. As per AMFI mutual fund performance data, there 34 multi-cap funds.
  2. Total asset under management (AUM) is Rs. 143,707.91 crores.
  3. Five funds have AUM of over Rs. 10,000 crores.
     


Securities and Exchange Board of India (SEBI) issued a circular on 11 September 2020 and modified the scheme characteristic of multi-cap funds.  From SEBI circular 

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

  • The minimum investment in equity & equity related instruments of large-cap companies-25% of total assets
  • The minimum investment in equity & equity related instruments of mid-cap companies -25% of total assets
  • The 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.”


Based on the above direction by SEBI, the following things will happen to multi-cap mutual funds:

  1. Funds have to reallocate their portfolio as per circular i.e. 25% in large-cap companies, 25% in mid-cap companies and 25% in small-cap companies.
  2. They have to comply with this rule by end of January 2021 (One month after AMFI published list of stocks in January 2020)

If AMCs doesn’t comply with this rule then they have to re-characterise the funds.  

I was curious why would SEBI bring such kind of circular when it already defined mutual funds in great detail in October 2017. So I started collecting portfolio information of multi-cap funds. First some basic data:

  1. As per AMFI mutual fund performance data, there 34 multi-cap funds.
  2. Total asset under management (AUM) is Rs. 143,707.91 crores.
  3. Five funds have AUM of over Rs. 10,000 crores.

To understand the need for the circular, we have to check the portfolio composition of these funds. Analysing portfolio of all the funds is not easy (You have to collect data for 34 funds from 34 websites). So I selected the top five funds based on their AUM size and the top-performing fund that is giving high return compared to category i.e. Parag Parikh Long Term Equity Fund. 

Table 1

Fund Name Large-Cap % Mid-Cap % Small-Cap % Other % AUM (Cr.)
Kotak Standard Multicap Fund 77.75% 18.69% 1.19% 2.37% 29550.50
HDFC Equity Fund 85.13% 9.25% 4.12% 1.5% 18424.11
UTI Equity Fund 52.82% 21.73% 1.59% 23.86% 11386.26
Motilal Oswal Multicap 35 Fund 80.19% 9.56% 5.29% 4.95% 11031.85
Aditya Birla Sun Life Equity Fund 67.37% 24.06% 6.20% 2.37% 10831.99
Parag Parikh Long Term Equity Fund 31.28% 15.23% 19.05% 34.44% 4798.00

 

Portfolio
Muticap Port

 

If we look at portfolio composition in table 1, other than Parag Parikh Long Term Equity Fund all funds have more than 50% share in the portfolio is of large-cap companies. Out of the six funds presented in the table, three will easily qualify as large-cap funds. Come February we are going to see a lot of changes in multi-cap space. Portfolio managers of Parag Parikh Long Term Equity Fund have to do a small adjustment in its portfolio. Till the time bull run in FAANG  companies continues it will beat rest of the pack. 

 

 


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