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It's time for new Beginnings , let's be flexible

Posted By: Admin

It’s the time for change and new beginnings, the United States  of America, has a new Team  in the White house, Joe Biden is the President Elect and Kamala Harris is the Vice President. Joe Biden is likely to have a  flexible approach to issues dominating the world as compared to his erstwhile compatriot. 

So is the case with the Mutual Funds Industry in India, with SEBI granting the go ahead on a new Category of Equity Mutual Funds i.e “Flexicap”. The  MF industry feels vindicated in its ask for this category of funds. 

Let’s understand this context a bit better. 

In 2017, SEBI had embarked on a categorization of funds with strict norms on holding of stocks and securities so as to enable investors and the general public to have an apple to apple comparison between two funds within  a certain category. While this has hugely been seen  as bringing a  certain order and expectations in the way a  Mutual Fund is managed, some of the fund categories had not been more clearly defined. Example Multicap Funds were left undefined as to the proportion of their stock holdings until recently. So multicap funds have used their diligence in their portfolio construction and this  has meant that two multicap funds in the category are uncomparable due to the disparate structure of equity  stock holding. 

In the recent months, SEBI has brought greater clarity in defining the structure of Multicap Funds namely, a multicap fund should have a minimum of 25 % holdings in each of the Large, Mid & Small Cap stocks within it, the final  25 % may be allocated as per the fund managers call based on the prevailing market conditions. While this rule is good in setting up uniformity , it possesses a further problem in that existing funds  which may have a more skewed portfolio would be forced to sell their holdings at a loss thereby working against the interest of unit holders , which is clearly not the intent of SEBI through this action. 

Welcome FLEXICAP,  Flexicap is a fund which will have at least  65 % holdings in equity across Large, Mid & Small Cap stocks and the fund manager has freedom to  choose the allocation percentage among Large, Mid & Small Cap stocks as he or she feels so based on the market opportunities and threats.  The MF houses are free to choose a suitable benchmark which I  suspect will be BSE 200 or a like index. All funds in this category will carry  the name “FLEXICAP” in the scheme name. 

This move  finally brought peace to the SEBI Circular on Multicap Funds a few months ago and the consequent need to change the underlying holdings within the end January 2021. Now Fund houses can have the option of either launching a new scheme under this category or renaming their existing multicap as a FLEXICAP  to remain compliant. 

Are we going to  see the largest fund in the Multicap space, Kotak Standard MULTICAP Fund being renamed as Kotak Standard FLEXICAP fund ? Let's wait & watch. 

From an Investor standpoint, the moot point is if I have invested in a fund based on the past track record , then irrespective of the fund  choosing to call itself Multicap or flexicap, as long as the performance of the fund continues to remain unchanged, I will stay put. As a new investor, I have a clearer understanding of where I want to put my money i.e Multicap Fund or Flexicap Fund. So it’s a win win for investors. 

So whether it is  Multicap or Flexicap is not really important, as long as it makes money. 

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