The Securities and Exchange Board of India unexpectedly tightened the investment norms for multi-cap schemes of mutual funds—a category that invests in a mix of large-cap, mid-cap and small-cap shares, reports The Economic Times.
The capital markets regulator has asked multi-cap funds, which manages investor money worth Rs 1.46 lakh crore, to invest at least 25% of their corpus each in large-cap stocks, mid-caps and small-cap stocks, a move that has triggered sharp protests in the industry. Currently, there are no restrictions.
The move is expected to force fund managers of multi-cap schemes to bring down their exposure to large-cap stocks and move money to small-caps and mid-caps. Majority of the multi-cap schemes have sizeable exposure to large-caps with some of them investing as high as 75% of the corpus. The small-cap holdings are less than 10% of the corpus in most of the cases.
Sebi has asked fund houses to comply with the new norms by January 31, 2021. The rush to add small- and mid-cap stocks to multi-cap portfolios could result in a run-up in share prices.
Stock allocations were the discretion of the fund managers, allowing them to shuffle their holdings as per the market conditions. Most fund managers preferred large-caps in the past three years. With the mid- and small-cap segments faring poorly since January 2018, most schemes in the category ended up with smaller allocation to these categories.