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    These leading multi-cap mutual fund schemes will turn into flexi-cap schemes

    Synopsis

    Investors of existing schemes that choose to remain in the multi cap category now face a dilemma—whether to continue with the fund or shift to another fund with a flexi mandate. Experts suggest investors to shift if not comfortable with the new avatar of multi cap funds.

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    Top multi-cap funds will turn ‘flexi cap’ to adhere to the new guidelines from market regulator Sebi. Two months ago, Sebi had laid down strict allocation norms for multi-cap funds. They were required to invest at least 25% each across large cap, mid cap and small cap segments. However, with most multi-cap funds taking a freewheeling approach to allocation based on the fund manager’s judgement, this was seen as a restrictive mandate. The new flexi-cap category introduced last fortnight has no such restrictions.

    Existing investors can now rest easy as most multi-cap funds, including the Parag Parikh Long Term Equity, Kotak Standard Multi Cap and Motilal Oswal Multicap 35 Fund, will move to this new basket. While this will be considered as a change in fundamental attributes, nothing materially changes for the scheme other than a change in the name from ‘multi’ to ‘flexi’ cap. The scheme moving to the new category will continue to adopt a flexible approach to allocation and not be constrained by market cap restrictions.

    “This is a welcome move by Sebi. A flexi cap strategy will allow the fund manager to invest wherever value and opportunities are available without restrictions,” says Neil Parag Parikh, Chairman and CEO, PPFAS Mutual Fund. This is ideal for those who do not want to take a view on market cap and leave it to the discretion of the fund manager.

    Multi-cap funds came in different flavours
    Most funds have a distinct large-cap tilt while others have made sizeable bets in the mid-cap and small-cap segments.
    review-flex
    Source: Value Research. Data as on 30 October 2020

    However, investors of existing schemes that choose to remain in the multi cap category now face a dilemma—whether to continue with the fund or shift to another fund with a flexi mandate. Experts suggest investors to shift if not comfortable with the new avatar of multi cap funds. Sebi’s intention behind the revised norms was to ensure multi cap funds retain exposure to multiple market segments, as per the nomenclature. A heavy large cap bias in multi cap funds was construed as not being ‘true to label’. However, as these will now park at least 50% in mid and small caps, the volatility in returns is bound to go up and implies a shift in the fund’s risk profile.

    Fund houses that move their multi-cap offering to the flexi-cap category may even launch a new multi-cap fund. However, it would be best to avoid any new multi-cap funds for now. With no track record to go by for the new asset allocation structure, it may be better to wait and see how these perform.

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    1 Comment on this Story

    Subramanian V7 days ago
    Good article from Mr. Sanket.
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