Reclassification of multi-cap funds begins

Last week, the Securities & Exchange Board of India (SEBI) had introduced a new category in the equity scheme named Flexi-cap. This has put a full stop to a lot of opinions regarding what the fund houses would do next to comply with the new multi-cap fund mandate of having a minimum of 25 per cent each in large-cap, mid-cap, and small-cap stocks. This had also led to the anticipation that the fund houses would now be selling large-cap stocks and buying mid-cap and small-cap stocks in order to comply with the norms. However, through our various articles in the magazine as well as via mindshare, we had advised investors not to panic and instead, have a wait & watch stance. Even on the stocks’ front, we had recommended not to rush buying mid-cap and small-cap stocks just because fund houses are buying them.

Now, since a new category has been introduced, multi-cap funds with large assets under management (AUM), have begun to reclassify their multi-cap funds to Flexi-cap funds.

Kotak Standard Multi-Cap Fund, which has the largest AUM of Rs 29,551 crore as of September 30, 2020, has announced that it will now reclassify it into a Flexi-cap category. Nilesh Shah, MD of Kotak Mutual Fund said, "Except the name of the fund which will be renamed as Kotak Standard Flexi-Cap Fund, everything else, that is fund manager, investment process and fund portfolio will remain the same as before."

Apart from Kotak Mutual Fund, Motilal Oswal Mutual Fund has also announced the reclassification of its multi-cap fund to a Flexi-cap fund. They would be reclassifying its Motilal Oswal Multi-Cap 35 Fund to Motilal Oswal Flexi-Cap 35 Fund. And like Kotak Mutual Fund, there would be no other change.

Following this, many other fund houses too might come up with similar announcements. The definition of the Flexi-cap category is in line with the definition of the erstwhile multi-cap category. As a Flexi-cap fund, at all times, it needs to have a minimum of 65 per cent of its assets in equity and related instruments with not many restrictions on market cap.