MF Query Board

Most of the multi-cap funds, which are effectively large-cap heavy, are likely to reclassify themselves as flexi-cap funds. Do you expect any basic change in their characteristics? If so, should one think of exiting these funds?

- Prashit Kalra

In time to come, you might witness such re-classification of funds from multi-cap category to the newly formed flexi-cap category. However, there is no need to panic and it is better to remain invested. Earlier, multi-cap funds were free to have any combination of market capitalisation in their portfolio until the Securities and Exchange Board of India (SEBI) came up with new norms to make them stick to their true label. Previously, they were free to invest across large-caps, mid-caps and small-caps in any proportion they deemed fit. However, the recent regulatory mandate from SEBI has directed multi-cap funds to invest minimum 25 per cent each in large-caps, mid-caps and small-caps.

Of course, this can bring about a significant change in the portfolios of many multi-cap funds. Also, the risk undertaken by each such fund would change. That said, after a lot of representations made to SEBI, it has created a new flexi-cap category in the equity scheme which possesses the same investment mandate that previous multi-cap funds used to have. Hence, now flexi-cap category is the one with no restrictions on market-cap. And therefore, funds that want to continue with the same investment mandate would likely shift from the multi-cap to the flexi-cap category. In fact, most of them have already begun to do so.

So, here we would suggest that if you are okay with the existing asset allocation and objective of the fund and the change in name does not matter much, remain invested. Further, if the fund decides to abide with the SEBI’s new multi-cap norms and remains a multi-cap fund, then you need to see whether you are okay with the additional risk. Again, if that does not bother you then there is no need to exit. If the fund chooses to remain in the multi-cap category, then there might be a significant change in its portfolio. And for this you need have a closer look at how the fund performs.

Navneet Munot has left SBI Mutual Fund to join HDFC Mutual Fund. Will this impact the performance of the SBI Mutual Fund schemes negatively?

- Abhimanyu Pandey

we believe that it is too early to draw any conclusion. Any investment team has two important components. The first is its people and second is the process. If you have a look at the team of fund managers at SBI Mutual Fund, it is pretty strong. They have experienced and competent fund managers such as R Srinivasan, Anup Upadhyay, Sohini Andani, Milind Agrawal, Rajeev Radhakrishnan, Dinesh Ahuja, and others. Therefore, they indeed have a fairly credible team of fund managers both in equity as well as the debt space. Definitely, Navneet Munot was the key person in their investment management team but provided that there are other credible fund managers around, his exit should not have a big material impact on the performance of the funds of SBI Mutual Fund. Moreover, the fund’s partnership with French giant Amundi has been of great value as their expertise helps in implementing a robust process with global best practices. That said, the exit of a key person from the investment management team would have an impact in some or the other way. Therefore, it does make sense to monitor closely the performance of SBI Mutual Funds for the next one to one and a half years before drawing any conclusion on Navneet Munot’s exit.

I have made some investments in mutual funds during April to May this year and they are showing me gains of around 40 per cent. Booking profits now would attract exit load and short-term capital gain tax as they were purchased less than a year ago. However, there is no tax on capital gains up to Rs1 lakh. So, in that case, does it make sense to book profits up to Rs1 lakh?

- Sunny Jain

The profit that you are considering is the reward for being brave enough to invest in the period of April to May, which was a difficult period for many. Even though the valuations seemed cheap, it at all was not a very pleasant time to invest since the markets had acted like a falling knife, especially in the month of March 2020. From a taxation viewpoint, you are only looking at the long-term capital gain but even if you book profit right now of up to Rs1 lakh, you would be liable for short-term capital gain tax of 15 per cent. To take advantage of this Rs1 lakh margin for booking tax-free gains, you can consider selling your older long-term investments that have earned you some appreciation in capital to book profits and re-invest. However, we believe that one should always consider selling one’s investments only if there is a need for meeting a financial goal. Another reason that might instigate selling could be the prolonged underperformance of a particular fund. If decision to sell is driven by the market, then there are a lot of chances to make a mistake while timing it. You really need to actively manage your investments to do so. Quarterly results of the companies being reported show 70-80 per cent recovery in their business. Hence, we are still far from returning to normalcy. Though we are heading towards that direction, the markets are behaving as if business disruptions never happened. This rally is simply due to global liquidity. How long this will sustain is dependent on how long it would take to return to the normal level. Readers are requested to send only one query at a time so that more readers get a chance. Have questions relating to any aspect of personal finance. Ask DSIJ at editorial@DSIJ.in and get your queries resolved.