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The recent SEBI circular on Multi Cap funds - What does it mean for you?

There has been a change in the minimum investment required in companies of various market capitalisations, in multi cap funds.

You must have read about the new SEBI circular on asset allocation of Multi Cap Funds, and the commentary that followed. We'll break this down for you in three parts - the context and content of the circular, the impact on your investments, and action required.

What is the SEBI circular all about?

This circular is a continuation of SEBI’s “true to label” philosophy - get what you buy. It started with the re-categorisation done in 2017 to ensure that investors understood the objectives of funds clearly. Now, SEBI wants multi cap funds to invest a minimum in large, mid, and small cap funds. 

Earlier, Multi Cap funds allowed fund managers a free hand in allocation as long as the minimum weightage to equity and equity related instruments was 65%.

With this circular, the above weightage needs to be 75% and fund managers will need to ensure: 

Minimum investment in large cap companies: 25% of total assets

Minimum investment in mid cap companies: 25% of total assets

Minimum investment in small cap companies: 25% of total assets

How does this impact those with a Scripbox portfolio?

In your Long term Wealth/ Wealth Edge portfolio, we recommend two funds under a sub asset class labelled as ‘Diversified’. These contain 6 different equity categories, including multi cap funds. One of our current recommendations is Kotak Standard Multicap Fund(G). From our past recommendations, Parag Parikh Long Term Equity Fund-Reg(G), UTI Equity Fund-Reg(D), and Motilal Oswal Multicap 35 Fund-Reg(G) are others that will come under the purview of this circular. 

What should you do as a Scripbox investor? 

At this point, nothing. The AMCs need to comply only by Jan 2021. Further, fund managers have options to comply with this without altering the composition of the fund. We’re keeping a close watch, and once the AMCs have communicated their strategy, we will recommend the next course of action to you. 

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