New categorisation of multi-cap equity funds augurs well: Crisil

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SME Times News Bureau | 16 Sep, 2020
Market regulator's latest move to usher in uniformity in categorisation of multi-cap equity funds augurs well for investors, ratings agency Crisil said on Wednesday.

Accordingly, it pointed out that the move will make it easier for investors to choose between and within categories.

Last week, the regulator modified the definition of the category and mandated market capitalisation requirements to make the schemes more diversified.

The regulator mandated fund houses till January 2021, to comply with this change in market capitalisation criteria for multi-cap funds.

As per Crisil's analysis, mutual funds have options like realigning the portfolio, facilitating unit holders' switch to other schemes, and merging multi-cap schemes with other categories to comply with this rule.

"Rebalancing of the scheme portfolio would also need review of existing benchmark indices to reflect the new market capitalisation requirement," Nagarajan Narasimhan, Senior Director - Research, Crisil said in a statement.

"This is because, currently, most broad-market indices are skewed towards large-cap stocks."

According to the agency, there are calls within the industry to allow a flexi-cap category that can invest freely across market capitalisation.

"However, whether the regulator obliges remains to be seen as there is already a focused fund category that allows flexible investments, albeit for a concentrated portfolio.

"As for investors, it is important to wait and watch what their fund house does with its scheme and then make changes to their portfolios based on overall risk-return profile, taxation impact and investment horizon," the statement said.