List of Multi Cap Funds That Have Been Recategorized As Flexi Cap Fund

If you have a multi cap fund in your mutual fund portfolio, you may have already received an email from the fund house stating a few fundamental changes in your multi-cap scheme. The changes in fundamental attributes of the scheme may include the change in category, its name, and a provision to create a segregated portfolio.

Many fund houses have decided to recategorize their Multi Cap scheme to the newly introduced Flexi cap fund category.

It is noteworthy that Multi-cap Funds earlier had the freedom to invest across market capitalizations and sectors based on the view of the fund manager. However, in September 2020, the SEBI had defined new rules for multi-cap funds, which mandated minimum investment of 25% in each market cap segment i.e. Large Cap, Mid Cap and Small Cap. Hence putting minimum investment condition across market cap segment.

In absence of any limit on market cap allocation, most Multicap Funds continued to hold a large cap biased portfolio. The change in allocation mandate raised concerns for existing multi-cap funds (preferably with a large cap bias) as they could be forced to buy mid cap and small cap stocks despite these segments not having the liquidity to absorb large inflows from mutual funds.

However, in order to give more flexibility to the AMCs, SEBI had vide circular dated November 06, 2020 had introduced a new category under equity schemes i.e. “Flexi Cap Fund”, which shall be positioned as dynamic equity fund and will not have any limit or bias towards any market cap segment.

Accordingly, SEBI has defined flexi-cap fund as an open-ended dynamic equity scheme investing across large cap, mid cap, and small cap stocks.

Which means after recategorization into Flexi Cap Funds the scheme will have the freedom to invest across large cap, mid cap, and small cap stocks in any proportion.

In order to avoid rebalancing of the portfolio to increase the allocation in mid cap and small cap segment many fund houses have announced recategorization of their Multi Cap Fund to Flexi Cap Fund.

Here is the list of Multi Cap funds that have announced the change in their categorization to Flexi Cap Funds:

Source: Notice & Addendum’s released by the respective AMCs

In our view, the recategorization of these Multi Cap Funds to Flexi Caps will not have any significant impact on the way these funds are managed.

Under the new category and name these funds will continue to follow their current investment strategy as it offers complete flexibility for the fund while investing across market cap segments.

Provision of Segregated Portfolio: The conditions in debt markets over the last few years have not been very safe and there have been many debt funds suffering from rating downgrades for some of their holdings. Considering this scenario, some fund houses have also announced an inclusion of provision for creation of segregated portfolio for the debt holdings in their schemes.

Notably, after the SEBI allowed creation of segregated portfolios, almost all mutual fund schemes are creating an enabling provision of this nature in the debt portion of their equity schemes as well.

The new provision as announced by the fund house will be inserted in the Scheme Information Document (SID) of the respective scheme under the relevant section as on the effective date.

After proposing the changes to be carried out in the fundamental attributes of the Scheme the fund houses are also providing investors an option to redeem/switch-out the units held by them in the respective scheme at the prevailing net asset value (NAV) within a period of 30 days without any exit load, if they do not approve to the proposed changes.

The Unitholders who are not in favour of the changes in fundamental attributes of the scheme, may choose to exit by submitting request for redemption or switch out to any other existing scheme of the fund house without payment of exit load, during the exit load free period of 30 days (post announcement) as mentioned by the fund house in its letter/email to unitholders.