After SEBI's notice, what is the best a multi-cap investor can do?
- Aditya Jichakar
To begin with, do nothing because this has caused a huge difference and multi-cap funds now need to realign their portfolios. Some big multi-cap funds virtually have no investments in small caps and if they have to invest 25 per cent in mid and small caps each, then it will completely alter the dynamics of their portfolio character.
Besides, I don't think the small-cap universe has that much liquidity or depth to absorb such a magnitude of investment in a brief period of time. So, my expectation is that many funds will actually change their colour. They will either change themselves to a focused fund, a large & mid-cap fund or something else to comply with the new rules.
And those funds who will comply with these rules may not be considered as multi-cap funds. This is because if we take the entire market cap of the Indian equity market, the top 100 companies constitute about 73 per cent of the entire market cap, about 14-15 per cent is made up by mid caps and the remaining 11-12 per cent by small caps. I am just giving you an estimate based on the BSE 500 breakup, where most multi-cap mutual funds invest in. Mutual fund's total portfolio spreads over something like 857 stocks and the investment in the bottom 100 is not very significant. So, the investable universe of Indian mutual funds is very narrow.
Given this, my clear answer to you is that do nothing for now. AMCs have time till January to figure out what they will do. However, funds should announce their move before that so that investors can take decisions. At Value Research, we will be telling you what to do with your different multi caps, as it is of great concern to us as well. This is because I have been saying all these years like a stuck record that - keep it simple, invest in few funds and those funds should be multi caps - and now there is a whole question about what happens to multi caps.
So, we will keep telling you what exactly you should do with your individual multi-cap funds. Keep visiting Value Research Online for updates, as we will be following fund companies to figure out what exactly they are going to do with their multi caps and how soon.