Hit by the Securities and Exchange Board of India (Sebi) directive to slap limits on stock market investments of multi-cap schemes of mutual funds, fund houses are considering various options including return of the investors’ money.
Top officials across various fund houses said they would explore the option of telling their investors to invest in their large- and mid-cap fund or they would look at merging their multi-cap fund with their large-cap fund. Some even say, if need be, they would be willing to return investors money if they are not convinced about putting large scale money in small-cap companies.
The first option that they have is to comply with Sebi guidelines and allocate 25 per cent each in mid- and small-cap stocks. Some say while they will comply with the regulations, they would invest in mid- and small-cap stocks for the benefit of the investor. “As a fund manager, I would buy mid and small-cap stocks if I see it makes sense for my investor,” said a senior fund manager with a leading fund house.
“Mutual funds are driven by the singular objective of doing what is right for our unitholders in compliance with extant rules and regulations in letter as well as spirit,” said Nilesh Shah, MD, Kotak Mahindra AMC.
Multi-cap funds may see more volatility
“One shouldn’t buy a small-cap or a mid-cap stock on the assumption that multi-cap funds are going to buy them from here till February 21. Sebi and mutual funds are going to take decisions which will be in the interest of unitholders,” he said. Fund houses are not sure whether they will be able to maintain the same returns after shifting money to small-caps which are considered to be very volatile.
“We will explore various options from returning money to unitholders, working with our partners to switch into our other funds, merger of schemes to ensure least disruption to portfolio and investment style etc to ensure that unitholders interest are always protected,” Shah said.
The market regulator, in a circular issued on Friday, has specified that minimum investment in equity and equity-related instruments of large-, mid- and small-cap companies should be minimum 25 per cent each of total assets.
As most of the fund houses have parked funds in big cap stocks, they will have to exit from these big caps and move funds to mid- and small-caps. This is being done to “diversify the underlying investments of multi-cap funds across the large, mid and small-cap companies and be true to the label”, Sebi said.
Data shows that multi-cap schemes have total assets under management of Rs 1.45 lakh crore. Of this around 1.05 lakh crore is invested in large-cap stocks and the exposure to mid and small-cap stocks is around 16.4 per cent and around 6.25 per cent, respectively.
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