Multi-cap funds, which were effectively large-cap heavy, are likely to reclassify themselves as flexi-cap funds. Do you expect any basic change in their characteristics? If so, should one think of exiting these funds?
- Prabhu Dutt
The switchover of these funds from the multi-cap category to the flexi-cap category would be, in fact, the status quo. Multi-cap funds till now used to be fairly unconstrained by regulatory mandate in terms of what market-cap segments they invest in. They had full liberty to invest across large, mid and small caps in any proportion. But by a recent regulatory mandate, SEBI has directed them to invest at least 25 per cent in each large, mid and small caps. And this can bring about significant change in the portfolios of many multi-cap funds.
Now after a lot of representations made by several industry representatives, SEBI has created a new flexi-cap category which inherits the investment mandate that multi-caps used to have earlier. So, now, that unconstrained category is the flexi-cap one. And that is why funds who want to continue with the same investment mandate would like to shift from the multi-cap to the flexi-cap category.
So, I would suggest if you are fine with the existing market-cap allocation of your fund, do not bother much if your fund moves from the multi-cap category to the flexi-cap one. In all likelihood, the status quo will be maintained after this transition. On the contrary, if your fund chooses to remain in the multi-cap category, that is where a significant change in its portfolio is expected. And that is what should warrant a closer look to decide whether you want to continue with the same fund or not.
