Does the outflow from multi-cap funds highlight investor worries on SEBI's diktat?

Mutual fund investors seem to be a concerned lot after the market regulator’s diktat on multi-cap schemes’ composition.  The latest data from the Association of Mutual Funds in India (AMFI) showed that the multi-cap category saw net outflows of Rs 1,143 crore in September.

A circular from the Securities and Exchange Board of India (SEBI), which proposed keeping at least 25 per cent exposure each to large-cap, mid-cap and small-cap stocks may have caused anxiety for investors.

Investors exercising caution

If it weren’t for the outflows from multi-cap funds, the equity category would have reported positive inflows of Rs 410 crore, after two months of back-to-back net outflows.

Industry observers say investors are booking profits amidst the run-up in the markets, and are getting concerned over the regulatory change.

"The regulatory changes may be playing on the minds of the investors," says Swarup Mohanty, chief executive officer at Mirae AMC.

Says Radhika Gupta, managing director and chief executive officer of Edelweiss MF, “It doesn’t look like a case where investors are just moving away from multi-cap schemes. Before the circular also, there have been outflows in multi-cap schemes.”

“MFs are also waiting to hear from SEBI on the representations that have made before it,” she adds.

The AMFI had written to SEBI about having a ‘flexi-cap’ category that will allow the management of multi-cap funds to continue as it is, without any disruptions.

“While the category has been witnessing net outflows since June, SEBI’s recent guideline on the investment mandate of the category could have also contributed towards the net outflow this month,” says Himanshu Srivastava, associate director-manager research at Morningstar India.

Agrees Rushabh Desai, a Mumbai-based MF distributor, “There has been a bit of both, investors taking money off the table with markets at high valuations, as well as investors concerned over possible changes in risk-profile of multi-cap schemes.”

According to distributors, following the SEBI circular, investors were raising several questions about their multi-cap investments.

So far, multi-cap schemes have been run as large-cap heavy schemes.