Sebi issues clarification on asset allocation framework for multi-cap MFs

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Regulator Sebi on Sunday said that mutual funds have many options to meet with the requirements of its circular pertaining to asset allocation framework for multi cap schemes based on the preference of their unit holders.


In a press release, the markets watchdog elucidated that excluding rebalancing their portfolio in the Multi Cap schemes, mutual funds (MF) could inter-alia facilitate switch to other schemes by unit holders, merge their Multi Cap scheme with Large Cap scheme or convert their Multi Cap scheme to another scheme category, for example, Large cum Mid Cap scheme.


The clarification came after the regulator tweaked asset allocation framework for multi cap mutual funds through a circular issued on Friday, requiring them to invest at least 25 per cent every in Large, Mid and Small Cap stocks, and giving flexibility to the fund manager with the balance 25 per cent.


In its latest press release, Sebi famous that some sections of media have reported more than a few views on the circular and more than a few conclusions are being drawn.


“Sebi is conscious of market stability and due to this fact has provided time to the Mutual Funds till January 31, 2021 to succeed in compliance with the circular through its preferred route of which rebalancing of the portfolio is just one such route,” the regulator said.


It is reiterated that to succeed in the desired objective of True to Label and Appropriate Benchmarking, Sebi will inspect proposals of the industry received in this regard, it added.


Multi Cap schemes had flexibility in the case of allocation to Large, Mid and Small Cap stocks but it was once observed that some Multi Cap Schemes have skewed portfolios, with over 80 per cent of investment in large cap stocks akin to Large Cap schemes, and a few Multi Cap schemes have close zero or insignificant asset allocation to small cap companies.


Subsequently, with a purpose to achieve the objectives of True to Label and Appropriate Benchmark, a need was once felt to review the scheme characteristics of Multi Cap schemes and take essential steps to clearly distinguish Multi Cap schemes from other category of schemes, Sebi famous.


“In an effort to diversify the underlying investments of multicap funds across the large, mid and smallcap companies and be true to label, it has been determined to partially modify the scheme characteristics of multicap fund,” the Securities and Exchange Board of India (Sebi) had said in its circular on Friday.

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