Last Updated on November 6, 2020 at 7:34 pm
SEBI has today announced a new equity scheme category: “Flexi cap fund”. This comes after Septembers announcement of multicap asset allocation rules (25% each of large, mid and small cap stocks) was met with fear by investors and put many large fund houses in a fix, especially those with a large AUM: How SEBI’ss Multicap MF asset allocation rules will affect investors
This new category perhaps is a result of an appeal by AMFI. SEBI mentions about the need to give fund managers flexibility – which was implicitly understood to have existed in the multicap category prior to the Sep 2020 rule!
A flexi-cap mutual fund is an open-ended dynamic equity scheme investing across large cap, mid cap, small cap stocks with a minimum 65% of assets in equity & equity related instruments.
A fund under this category will be explicitly referred to as flexi-cap. Existing funds, in particular, multi-cap funds that wish to preserve their portfolio market cap profile can shift to this flexi-cap category by issuing a fundamental change in attribute circular and giving investors months time to exit without load.
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What should an investor do? If you receive such a circular that your fund is changing category to a flexi-cap fund, look for other changes in investment strategy. If there are none, you can stay put. If there are changes then you will have to evaluate each of them on merit.
This category is an unnecessary move to placate fund houses. They could have simply left the multi-cap category as is. It would be interesting to see how many funds choose to remain as multi-cap.
This move is just another way for AMCs to sell NFOs with fancy strategies (often absent in the fund document!).