HDFC, Axis and DSP Convert Their Multi Cap Funds To Flexi Cap

Publish Date: Dec 28, 2020

Three major fund houses HDFC Mutual Fund, Axis Mutual Fund, and DSP Mutual Fund have changed the fundamental attributes of their Multi Cap schemes and recategorize it into a newly introduced Flexi cap fund category.

In an addendum released by the fund houses, they have stated a change in fundamental attributes of the schemes, which includes the change in scheme category, change in scheme name, as well as a provision to create a segregated portfolio.

Here are the changes announced in category and scheme name.

 

Going ahead, these schemes will be classified under Flexi Cap Fund category. SEBI has defined flexi-cap fund as an open ended dynamic equity scheme investing across large cap, mid cap, small cap stocks.

The new name of the ‘HDFC Equity Fund’ will be ‘HDFC Flexi Cap Fund’, ‘Axis Multicap Fund’ will be renamed as ‘Axis Flexi Cap Fund’, whereas ‘DSP Equity Fund’ will be known as ‘DSP Flexi Cap Fund’.

All the three schemes were till now categorized as a Multi-cap Fund, with a mandate to invest minimum 65% of its assets in equities spread across market caps, whereas upto 35% of its assets can be held in Debt & Money Market instruments.

Being categorized as a flexi cap fund, all the 3 schemes will have the freedom to invest across large cap, mid cap, and small cap stocks in any proportion. The corpus of the scheme will be invested in equity and equity related and various fixed income securities.

It will hold 65% to 100% of its assets in equities, 0% to 35% in Debt & Money Market instruments, and 0% to 10% in Units issued by REITs and InvITs. (DSP Flexi Cap Fund has not included provision to invest in Units issued by REITs and InvITs).

Earlier, multi cap funds had the freedom to invest across market capitalizations and sectors based on the view of the fund manager. However, in September 2020, the SEBI had defined new rules for multi-cap funds, which are required to invest at least 25% of the corpus each in large cap, mid cap and small-cap stocks.

This change in allocation mandate raised concerns for existing multi-cap funds (preferably with a large cap bias) as they will be forced to buy mid cap and small cap stocks despite these segments not having the liquidity to absorb large inflows from mutual funds.

Post this, the industry players had through AMFI, asked SEBI to create a new flexi-cap category, which will not have any such restrictions.

In our view, the recategorization of these funds to a flexi-cap will not have any significant impact on the way these funds are managed.

Under the new category and name these funds will continue to follow its current investment strategy as it offers complete flexibility for the fund.

In addition, the fund houses have also announced an inclusion of provision for creation of segregated portfolio for the debt portion of its portfolio.

Notably, after the SEBI allowed creation of segregated portfolios, almost all mutual fund schemes are creating an enabling provision of this nature in the debt portion of their schemes.