Multi-cap funds must hold at least 75% of their assets in equities -- up from 65% at present -- with 25% each in large, medium and smaller companies to ensure they stick to their mandate of investing in a wide set of stocks, the Securities & Exchange Board of India said in a circular late Friday.
"Many multi-cap funds have traditionally been run with a large-cap bias, in the range of 60%-75%, with some going even as high as 85%-90% depending on their views on relative valuations between the three segments, ” said Kaustubh Belapurkar, director of fund research at the Indian unit of Morningstar Investment Adviser.
Funds have up to February 2021 to meet the new norms and are unlikely to rejig holdings in a hurry. Some plan to ask Sebi to extend the deadline to reduce the impact cost of portfolio transitions. Smaller companies -- the stars of India’s market in 2017 -- have trailed the benchmark indexes in the past two years, as investors sought the safety of the biggest stocks amid headwinds from the crisis in the shadow bank sector and the slowdown in economic growth even before the pandemic struck.