A Matter of Caps!

Recently SEBI modified its asset allocation rules of multi-cap mutual funds under the pretext that the existing funds under this category are not ‘true to label’. This has created quite a bit of confusion among investors and mutual fund houses instead of clarity. Further, it comes merely three years after a complete overhaul was undertaken by the regulator to categorise and rationalise mutual fund schemes. Looking at the current structure and allocation of the equitydedicated mutual funds, I find that the purpose with which this category was launched is being defeated. 

Even after three years of categorisation, these multi-cap funds have an uncanny resemblance to large and mid-cap funds that were introduced in the year 2017. These large-cap and mid-cap funds are mandated to invest at least 35 per cent in large-caps and at least 35 per cent in mid-caps. The interesting part is that most of the current large-cap and mid-cap funds were earlier categorised as multi-cap funds. Thus, fund houses that had more than one fund in a multi-cap category converted one into large-cap and mid-cap and one into multi-cap without changing the fundamental attributes.

From an investor’s perspective, it must be understood that most of the multi-cap funds do not exhibit the character of a multi-cap but more of a large-cap and mid-cap. Therefore, if you are interested in getting exposure to a multi-cap fund and you know the risk associated with it, it is better to split your investment into three categories of funds individually or select a multi-cap fund that is true to the label. Our cover story this time will help you to decipher the true character of these multi-cap funds and point to options that you do have to tackle the current situation.

SHASHIKANT