Changing Caps In The MF World
Outlook Money|October 2020
Changing Caps In The MF World
While Sebi’s decision on multi cap funds brings cheer to investors, large AMCs oppose this move, fearing huge loss
Saibal Dasgupta

A recent decision by the securities regulator came as a mild earthquake for many in the mutual fund industry and a big surprise for millions of investors as multi cap funds are supposed to contain a mix of all three major categories - large, medium and small cap shares.

The bulk of the money in equity funds comes from ordinary investors because institutions and companies usually prefer debt funds. They are also those with the insufficient capability to assess a plethora of mutual fund schemes sold through high-pressure marketing and require a greater protection from the regulator. At stake are funds that are worth at least ₹35,000 crore.

The Securities and Exchange Board of India (Sebi) found that major Asset Management Companies (AMCs) were investing 70 to 80 per cent of funds in just one category - shares of large and influential companies - allocating very little to other categories. Many agree with the regulator that mutual fund companies are mislabelling the funds as multi cap and thus misleading investors.

“For a long time, I have felt shortchanged. I bought multi cap funds but my money was not invested in small and mid cap stocks that often stand a chance of high returns. Fund managers exhibited a clear bias for the big companies,” complains Maheshbhai Patel, an investor from Ahmedabad.

But there are many who are strongly opposed to the new rule. Most large AMCs will be affected and this means a major part of the investors in multi cap funds. The AMCs will be forced to reduce their fund allocation to large cap shares and increase investments in the other two categories. The Association of Mutual Funds in India (Amfi) has asked for relaxation and the market expects some concessions from the regulator.

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October 2020