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

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 clarified that apart from 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 instance, 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 a minimum of 25 per cent each 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 noted that some sections of media have reported various views on the circular and various conclusions are being drawn.

"Sebi is conscious of market stability and therefore has given time to the Mutual Funds till January 31, 2021 to achieve compliance with the circular through its preferred route of which rebalancing of the portfolio is only one such route," the regulator said.

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

Multi Cap schemes had flexibility in terms of allocation to Large, Mid and Small Cap stocks but it was 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 some Multi Cap schemes have near zero or insignificant asset allocation to small cap companies.

Therefore, in order to achieve the objectives of True to Label and Appropriate Benchmark, a need was felt to review the scheme characteristics of Multi Cap schemes and take necessary steps to clearly distinguish Multi Cap schemes from other category of schemes, Sebi noted.

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