InvestorQ : Has SEBI done the right thing in the Multi Cap stocks and will the stocks benefit?
diksha shah made post

Has SEBI done the right thing in the Multi Cap stocks and will the stocks benefit?

Rashi Mehra answered.
7 months ago

In a way, one can argue that SEBI is technically justified as the idea of calling your fund multi cap and making it resemble a large cap does not really add much value and tends to mislead the investor. That will be addressed by this stipulation by SEBI.

That in a way is the eminent logic to the change made by SEBI. If you look at a majority of the multi-cap funds in the market today, they have up to 80% of their allocation in large caps and hence their performance almost mirrors the large cap funds.

Even in 2018, when SEBI forced to classify funds and have only one fund per category per AMC, the idea was not to mislead the investors with the use of the wrong fund nomenclature. That appears to be the purpose here also.

SEBI saw two problems as the multi-cap fund segment had Rs.147,000 crore as assets under management or AUM and that is significant. There was no point in having another segment that looked like large cap but only gave the fund manager too much leeway to act.

As of now it is not clear how the mutual funds will react. But if the shift was to happen then the inflows into mid caps and small caps should be Rs.15,000 crore and Rs.25,000 crore respectively. That means; a lot of selling in large caps and big buying in small and mid caps.

One option is that many funds may opt to change their categorization from multi-cap fund to a flexi-cap fund or a dynamic fund where the fund manager anyways has a lot more leeway in asset mix for higher returns.

While it looks like small stocks could benefit from this move, the big challenge is about liquidity in small cap and mid cap space. If small cap space cannot absorb the flow of Rs.25,000 crore, then the entire legislation may lose its purport. We have to wait!