Sebi, in a recent circular, changed the asset allocation rules for multi-cap funds on Friday. According to the Sebi circular on ‘Asset Allocation of Multi-Cap Funds’, changes to the portfolio allocation of multi-cap schemes have been made to achieve diversification. The circular said: “In order to diversify the underlying investments of the multi-capitalization funds in large, medium and small capitalization companies and to be faithful to the label, it has been decided to partially modify the characteristics of the capitalization fund scheme multiple”. These are the five points to explain the change in the asset allocation rules of multi-capitalization funds:
1. A multi-capitalization fund must invest a minimum of 75% of its total assets in equities and equity-related instruments. Currently, the rule is to invest a minimum of 65% in stocks.
2. The minimum investment of 75% in equity and equity-related instruments must be made as follows:
- Minimum allocation to large-cap companies: 25%
- Minimum allocation to mid-cap companies: 25%
- Minimum allocation to small-cap companies: 25%
Currently, multi-cap mutual fund fund managers can invest in market capitalization of their choice.
3. The top 100 stocks based on market capitalization are defined as large-cap stocks, the 101st to 250th stocks are called mid-cap stocks, and the 251st onwards are called small-cap stocks.
4. Sebi has given mutual fund houses until January 31, 2021 to comply with the latest rules, within a month after Amfi publishes the following list of large-cap, mid-cap, and small-cap stocks.
5. Currently, the portfolio of most multi-cap funds is skewed toward large caps with 65% to 90% of their portfolio in large-cap stocks. Under the latest rules, mutual funds will not be able to invest more than 50% in large caps.
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