SEBI regulation recently has come up with new Flexicap Mutual Funds. Many experts have stated, this new scheme is relatively the same as previous multicap funds. Two months earlier, SEBI came with an announcement on the segmentation of Mutual Funds.
Check out the article on SEBI regulation on the Multicap fund. It states any multicap fund should have a minimum of 25% weightage on Large cap, Small cap, and Mid Cap stocks. Before the current regulation, a multicap fund should have a minimum of 65% of weightage in Equity or Equity related investments.
This regulation was not an appreciating factor in the market, as the fund manager and AMC were stringent by SEBI. The flexibility of choosing Cap’s stocks was the limitation. This was alarming, as the AMCs had major threats of losing the fund size, and this happened.
So, let us divert to the new scheme launched by our Security and Exchange Board of India.
Flexicap Mutual Fund:
According to SEBI, this is a dynamic open-ended equity fund with a minimum of 65% investment in equity and equity-related instruments. The AMC’s or fund manager has the complete right in diversifying their investments across various capitalizations.
There is no minimum capping between Large Cap, Mid Cap, and small cap stocks. This scheme provides freedom even allocating 100% in either largecap or Midcap.
In addition to this, SEBI has relaxed all the AMC’s on shifting their existing funds to flexicap funds. This becomes a real booster for AMC’s to showcase a potential performance on funds and attract more investors.
This new scheme which was launched on the 6th of November 2020 by SEBI will benefit the investors looking for moderately high risk with returns breaking the NIFTY performance.
Why Flexicap Mutual Funds Attracts Investors:
As there was a need for a flexible investment modality for both investors and AMC’s. The announcement from SEBI on the new scheme was like a welcome in the mutual fund industry.
When you see the Multicap performance. The AMC which managed the funds with maximum weightage in Large cap stock only has performed,
- Relatively higher than the Nifty 50, or
- Same as Nifty 50 performance.
So, the law of 25% diversification in midcap and smallcap stocks will ultimately cause the performance of the fund to slow down. If not as a sudden influence, it will be impacting long term benefits. That’s the reason, many investors have redeemed their investments from multicap and where had no clue of further investments.
Now, Investor has a reason to be happy, as this scheme has given the fund managers flexibility on diversification and change of stocks.
Since 6th November, there are 5 AMC’s have introduced Flexicap funds. Kotak Flexicap Fund was the first to launch under this category. These funds are transferred from the multi cap scheme to the flexicap scheme. So, Just a shift in scheme name and there is no change in fund size, fund manager, and fund holdings.
The other funds under this scheme are,
- IDFC Focused Equity Fund.
- Principal Multicap Growth Fund.
- L&T Equity Fund.
- BNP Paribas Multicap Fund.
- Parag Parikh Long Term Equity Fund.
Future of Multi Cap Funds:
As you have seen the 6 funds that have been newly launched under the Flexicap fund, were transferred from multicap funds. This one statement will help you understand the multicap fund.
If you ask us, is this the end of a multicap fund? Not, the current regulation on multicap funds will be helping more investors, who look for more diversification of stocks.
As Multicap, the name says it should have even weightage over every category stock. Hence, there would be some investors holding in multicap funds.
The interesting fact is most AMC’s will transfer the multicap scheme as a Flexicap scheme. The existing multicap total fund size is Rs.1,46,532 Cr. In which 65.2% of the holdings are in largecap stocks.
So, the AMC’s which hold more than 50% in large cap stocks will be likely to change their scheme name from the banner of multi to Flexi.
The other AMC’s which hold largecap stocks less than 50% in the portfolio will continue to have under multicap funds.
Conclusion:
- One of the recent announcements from SEBI was welcomed by every investor in Equity.
- This scheme provides flexibility for the fund manager and AMC’s to choose the diversification of stocks, as it has no capping on particular capitalizations of stocks.
- This scheme will be operating like old multicap funds, and new multicap regulation will be a sort of new model in mutual funds.
- This change will not make any changes to market dynamics. Yet, it will be a treat boost for existing multicap investors, who have been annoyed for the last 2 months.
DISCLAIMER: We are not SEBI registered investment advisors. The details shared in these articles are our understanding and view. We never promote or recommend any stock or mutual funds.