In September 2020, The Securities and Exchange Board of
India (SEBI) changed the fundamental attributes of a multi cap fund.
On concerns raised by various stakeholders, SEBI introduced
a new category called flexi cap mutual fund.
The concerns were genuine and warranted since according to
the new rules, a multi cap fund would need to be 50% invested in mid and small
cap stocks which would make it aggressive compared to previous rules.
For existing multi cap funds, they were given the option to
either convert their fund to a flexi cap fund or to remain as a multi cap fund.
What
is a flexi cap fund?
A flexi cap fund is a mutual fund that needs to be invested
in equities for a minimum of 65% at all times.
The remaining 35% can be invested in either debt,
international equity, cash or any caps or all.
It can go up to any number till 100% but it cannot go under
65% because for a mutual fund to qualify as an equity fund for tax purposes it
needs to invest a minimum of 65% into equities, except for elss/tax saving
mutual funds.
There is no restriction with caps in a flexi cap fund.
The fund manager has a free hand to move across sectors and
caps.
Basically, a flexi cap fund will now be run exactly like how
a multi cap fund was earlier, the only change is in the name.
|
List of
Multicap funds that have converted to Flexi cap fund |
|
Aditya Birla Sun Life
Equity |
|
Axis Multicap |
|
BOI AXA Multicap |
|
Canara Robeco Equity
Diversified |
|
DSP Equity |
|
Edelweiss Multicap |
|
Franklin India Equity |
|
HDFC Equity |
|
HSBC Multicap |
|
IDBI Diversified Equity |
|
IDFC Multicap |
|
JM Multicap |
|
Kotak Standard Multicap |
|
L&T Equity |
|
LIC MF Multicap |
|
Motilal Oswal Multicap
35 |
|
PGIM India Diversified
Equity |
|
Parag Parikh Long Term
Equity |
|
Shriram Multicap |
|
Taurus Starshare |
|
Union Multicap |
|
UTI Equity |
Additional reading: Click Here to read about the various types of equity mutual funds
What
happens if your multi cap turns into a flexi cap fund?
In case your multi cap gets converted into a flexi cap fund
then as explained above, there will not be any fundamental changes to your fund
except for name change.
A flexi cap fund will still function as how a multi cap was
previously functioning, the only change is in name.
Additional reading: Click Here to read our complete report on ELSS funds and how they work
What
is a multi cap mutual fund?
A multi cap mutual fund needs to invest:
- Minimum 25% in large cap stocks
- Minimum 25% in mid cap stocks
- Minimum 25% in small cap stocks
The remaining 25% can be invested in either debt,
international equity, cash or any of the above caps or all.
For a scheme to qualify as a flexi cap mutual fund, a mutual
fund needs to invest a minimum of 75% in domestic equity divided as explained
above.
Multi cap mutual funds list
List of Multicap funds as on 1st March 2021 |
Baroda Multicap |
BNP Paribas Multicap |
ICICI Pru Multicap |
Invesco Multicap |
ITI Multicap |
Mahindra Manulife Multicap |
Nippon Multicap |
Principal Multicap |
Quant Active Multicap |
Sundaram Equity Multicap |
What
happens if your multi cap remains a multi cap fund?
In such a scenario your multi cap fund would be slightly
more aggressive.
The word ‘slightly’ has been mentioned because all past
multi cap funds were run differently from each other.
Some were more aggressive than others, there was no set
rule.
In such a scenario you would need to be aware how your past
multi cap was functioning because this would help you understand whether your
risk appetite would suit the new attributes of a multi cap fund.
In case you have a higher risk appetite then this would not
make any difference, if not then you would need to make a decision based on
other factors.
Of course this would only make sense if you actually undertook
a risk appetite review.
What should you do if you are currently invested in a multicap fund?
If you are currently invested in a multicap mutual fund then you need to first note what direction your multicap fund is going to take.
It would either stick with
being a multicap fund or be converted to a flexi cap mutual fund.
You would need to decide if
you want to invest in a flexi cap mutual fund (in new mandate) or multicap
mutual fund (in old mandate).
In case your current multicap
mutual fund decides to convert itself into a flexi cap mutual fund, it would
provide you a period of 1 month within which you can redeem your investments
without attracting any exit load.
You would need the consider
the following points, no matter your decision:
- Your tax structure, if any.
- Your overall portfolio structure.
- Your risk appetite
- Your goals and
- Your time horizon among other things.
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