SEBI Move To Churn Mutual Fund Portfolios, Also Necessitates Review of Underlying Benchmarks, Says CRISIL
The latest move by Securities and Exchange Board of India (SEBI) to usher in uniformity in categorisation of multi-cap equity funds augurs well for investors as it will make it easier for them to choose between and within categories, feels ratings agency CRISIL.
 
One of the largest equity mutual fund categories, multi-cap funds had average assets under management (AUM) of Rs1.46 lakh crore as of August 2020.
 
The regulator has modified the definition of the category and mandated market-capitalisation requirement to make the schemes more diversified. Fund houses have till January 2021, to comply with this change in market-capitalisation criteria for multi-cap funds.
 
Piyush Gupta, director for funds research at CRISIL says, "In the short term, therefore, the regulator's move to make schemes true to their label could set the industry aflutter and result in merger, movement and new scheme launches."
 
The ratings agency says its analysis shows mutual funds have the following options available to comply with this rule.
 
Realigning the portfolio – Most multi-cap funds will have to sell off their large-cap investments to meet the new investment limits for mid- and small-cap stocks. This could result in about Rs41,000 crore of net outflows from large-caps and net inflows of around Rs13,000 crore and about Rs28,000 crore in mid-cap and small-cap segments respectively.
 
"Finding that order of investments in lower caps could be uphill task for fund managers, especially given the illiquidity in the segment and the downbeat economic forecasts amid the Covid-19 pandemic," CRISIL says.
 
Facilitate unitholders’ switch to other schemes – This has tax implications especially for investors with less than one-year holding period. Further, even for investors with a long-term investment horizon, capital gains of more than Rs1 lakh per year is subject to long-term capital gains tax.
 
Merge multi-cap schemes with other category – A fund house can merge its multi-cap scheme with its large-cap scheme or convert its multi-cap scheme category to say large-cum-mid-cap scheme. 
 
There are 35 multi-cap open ended schemes in the mutual fund industry and within those asset management companies (AMCs), 27 have large-cap schemes, while 26 have large- and mid-cap schemes in their portfolio. 
 
Merging of schemes into other categories will, however, make their own multi-cap category offering vacant, requiring them to launch a new scheme as per the new provision – an option bereft of vintage and requiring time to build up scale in terms of assets and investor base.
 
Nagarajan Narasimhan, senior director for research at CRISIL says, “Rebalancing of the scheme portfolio would also need review of existing benchmark indices to reflect the new market capitalisation requirement. This is because, currently, most broad-market indices are skewed towards large-cap stocks.”
 
Meanwhile, the ratings agency says, there are calls within the industry to allow a flexi-cap category that can invest freely across market capitalisation. However, it says, 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 ratings agency concludes.
 
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Ramesh Popat

    1 week ago

    bad and silly moves by SEBI, detrimental to investors.
    next one already declared. of NAV on fund realization!
    retail investors suffering in many such ways.

    COVID-impacted Economy, May See Gradual Recovery: RBI Governor
    The recovery of the economy reeling from the impact of COVID-19 pandemic will be gradual, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Wednesday.
     
    Addressing the FICCI national executive committee meeting, the central bank chief said that the country is still reeling under the impact of COVID-19 and will gradually come back on normal growth path.
     
    He, however, said that things have considerably improved in the second quarter after adverse impact the pandemic had on economic activity in the first quarter.
     
    Citing World Bank assessment, Mr Das said that recovery globally would take a longer route as it is not fully entrenched.
     
    On its part, Mr Das said, RBI has persistently done large liquidity infusion and this has ensured large borrowing by the government at low rate and in non-disruptive manner. The liquidity infusion in other sectors have also worked well.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    soundararajanmk

    1 week ago

    SEBI is fully correct in capping large cap investment in their Multi-cap Funds. The dividend yield is very low and price to book value is very high in respect of large cap stocks, compared to mid cap shares. The abnormal investment in the investment of large caps is only causing violent fluctuation in stock prices besides violent volatility. It is nothing but authorised gambling at the cost of mid cap shares whose dividend yield is excellent besides the fact that their market price is very cheap compared to their book value. The orders of SEBI will now ensure fair trading and protect long time investors bringing faith in the stock market.

    Complete automation of NPA recognition by 30 June 2021: RBI
    The Reserve Bank of India (RBI) on Monday directed banks to complete the automation of bad loan recognition and asset classification by 30 June 2021.
     
    In a notification, the RBI said that the processes for NPA identification, income recognition, provisioning and generation of related returns in many banks are not yet fully automated.
     
    "Banks are still found to be resorting to manual identification of NPA and also over-riding the system generated asset classification by manual intervention in a routine manner," it said.
     
    "In order to ensure the completeness and integrity of the automated Asset Classification (classification of advances/investments as NPA/NPI and their upgradation), Provisioning calculation and Income Recognition processes, banks are advised to put in place/upgrade their systems to conform to the following guidelines latest by 30 June 2021," the notification said.
     
    As per the guidelines, all borrowal accounts, including temporary overdrafts, irrespective of size, sector or types of limits, shall be covered in the automated IT based system (system) for asset classification, upgradation, and provisioning processes. Bank investments shall also be covered under the system.
     
    Further, asset classification rules shall be configured in the system, in compliance with the regulatory stipulations.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    s5rwav

    2 weeks ago

    On going Project #StopAuction of #DwellingHouse. Banks cannot Auction Dwelling House if the Person has Only One Dwelling House. Housing is Human Rights. RBI Must Stop Such Auctions by the Banks being illegal. I am Babubhai Vaghela from Ahmedabad. Thanks. https://03776497059325704824.googlegroups.com/attach/b52dd85940b8c/20200912_100447.jpg?part=0.1&view=1&vt=ANaJVrGB4ZlDXSA7obqMIZG857a2vFld4yyKaz0TuVjLUlbifXZmx6j_dK4cTN3Yz22geFHKBYlWGAUfuo4oXCI8M_FAoDfv_98Yk0EB-FC3EgjpKoVhKfw

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone