Multi-Cap Rule Change: SEBI Says Mutual Funds Free To Choose Route

On Sunday evening, the Securities and Exchange Board of India (SEBI) clarified that mutual funds are free to choose the route for complying with the revised norms on multi-cap funds.

"Apart from rebalancing their portfolio in the Multi Cap schemes, they could inter-alia facilitate switch to other schemes by unitholders, merge their Multi Cap scheme with their Large Cap scheme or convert their Multi Cap scheme to another scheme category, for instance Large cum Mid Cap scheme," the market regulator said.

On 11 September, SEBI announced new portfolio allocation rules for multi-cap equity mutual funds that have made it mandatory for these funds to have at least 75 percent of its asset allocation in equity and equity-related investments compared to the current 65 percent requirement.

Further, the fund will have to invest a minimum of 25 percent of their portfolio each in large-cap, mid-cap and small-cap companies.

Analysts say that as most multi-cap funds place majority of the corpus in large caps, it is likely that these schemes, which now have minimal investments made in mid and small caps, may choose to consolidate or close some schemes to comply with the rule change will keep returns stable in the current economic climate.

The clarification provided on Sunday could help mutual funds look at options such as a merger of multi-cap funds into large and mid-cap schemes or conversion of the existing product into thematic schemes.