Recently, SEBI has intimated with new circular about to change the asset allocation policies in multi-cap funds. As per new circular by SEBI as on 11th September, 2020 the minimum investment in equity and equity related instrument must have 75 percent of their total AUM in multi-cap funds. Before this circular, it was 65 percent. Most important step is, it is mandatory to have allocation of 25 percent of total assets in each category (large, mid and small cap segment) market.
With this major change in regulation, there would net outflows from large cap segment of about Rs. 39,324 crore and net inflow of Rs. 12,322 crore and Rs. 27,101 crore in mid-cap and small-cap respectively which we can see in the below table.
We all know the drastic funds flow impact in mid and small cap companies during this COVID-19. These sectors are facing big challenge to survive in this economic condition. It is fact that if the company is unable to generate revenue and its interest coverage ratio is declining then to get the funds through investment instruments is become difficult. Hope that this regulation injecting new investment in mid and small cap companies in the difficult time which can help to grow the economy of the nation.
Estimated Shifts in Portfolio according to new Regulation
*The foreign stock in the fund are assumed as large caps as their marketcap is bigger than Indian largecap companies. All figures are round off. (Source: value research)
Dr. Himanshu Barot, Professor, Unitedworld School of Business (UWSB)
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