The Securities and Exchange Board of India (SEBI) on Friday (11th Sept. 2020) tweaked the rules for investment allocation by multi cap equity funds. This will result in up-to Rs 40,000 crore moving from large-cap to broader market, said analysts.

The Minimum investment in equity & equity related instruments – 75% of total assets in the following manner:

The minimum investment in equity & equity related instruments of large-cap companies – 25% of total assets
The minimum investment in equity & equity related instruments of mid-cap companies – 25% of total assets
The minimum investment in equity & equity related instruments of small-cap companies – 25% of total assets

All the existing multi-cap funds shall ensure compliance with the above provisions within one month from the date of publishing the next list of stocks by AMFI, i.e. January 2021,” said SEBI.

What Is a Multi-Cap as per SEBI

SEBI defines a multi-cap fund as an open-ended equity scheme investing across large-cap, mid-cap, small-cap stocks. The top hundred stocks by market capitalization are large-caps, stocks from rank 101 to 250 are mid-caps and stocks rank 251 onward are small-caps.

Current Multi-Cap Portfolio Composition

Let us look at the portfolio composition of some of the prominent schemes in the multi-cap category.

Kotak Standard Multi-Cap Fund, the largest scheme in the multi-cap category, has around 74.% in large-cap, around 18.8% in Mid-cap stocks, and less than 1% in small-cap stocks.

Motilal Oswal Multicap 35 Fund has around 89.6% in large cap, around 5.2% in mid cap and 3.4% in small cap.

Another Prominent Multi-cap scheme, SBI Magnum Multi-cap fund has around 75.2 in large-cap, around 15.5% in mid-cap and, 6.5% in small-cap.

What analyst’s are saying

Abhimanyu Sofat from IIFL Securities gave out few names of mid-cap stocks which might see more buying by the mutual fund houses around January 2021. “Among mid-cap stocks, AU Small Finance Bank, Jubilant FoodWorks, SRF Ltd, Ramco Cements, Balkrishna Industries, Bharat Electronics, Power Finance Corporation, TVS Motors, Voltas, Crompton Greaves Consumer Electricls, and REC are some of the top existing holdings by the fund houses which may see further buying by the AMCs,” Sofat said. As a result of enhanced buying in these stocks, a big rally in these mid-caps stocks can be seen.