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Sebi, in a recent circular, has tweaked the asset allocation rules for multi cap funds on Friday. According to the Sebi circular on 'Asset Allocation of Multi Cap Funds', the changes in the portfolio allocation of multi cap schemes have been done to bring diversification. The circular read, "In order to diversify the underlying investments of Multi Cap Funds across the large, mid and small cap companies and be true to label, it has been decided to partially modify the scheme characteristics of Multi Cap Fund." Here are the five points to explain the change in the asset allocation rules of multi cap funds:
1. A multi cap fund will be required to invest a minimum of 75% of its total assets in equities and equity-related instruments. At present, the rule is to invest a minimum of 65% in equities.
2. Minimum investment of 75% in equity and equity related instruments has to be done in the following manner:
Minimum allocation to large cap companies: 25%
Minimum allocation to mid cap companies: 25%
Minimum allocation to small cap companies: 25%
At present, fund managers of multi cap mutual funds can invest across market capitalisation as per their choice.
3. Top 100 stocks on the basis of market capitalisation are defined as large cap stocks, 101st to 250th stocks are called mid caps and 251st onwards are termed as small cap stocks.
4. Sebi has provided time till January 31, 2021 to mutual fund houses to comply with the latest rules, within one month of Amfi releasing the next list of large cap, mid cap and small cap stocks.
5. Currently, the portfolio of most multi cap funds is biased towards large caps with 65% to 90% of their portfolio in large cap stocks. As per the latest rules, mutual funds will not be able to invest more than 50% in large caps.
