The market regulator's new rule on allocations within multi-cap funds will drive flows into small and mid caps but won't lead to frenzied buying, according to Sundaram Mutual Fund's Sunil Subramaniam.
The change in rule will lead to Rs 10,000 crore worth of additional flows into small caps and Rs 5,000 crore into mid caps, Subramaniam, managing director at Sundaram Asset Management Company, told BloombergQuint in an interview.
That's less than half the Rs 35,000-50,000 crore that brokerages see flowing into small and mid caps. The estimates come after the Securities and Exchange Board of India on Friday mandated that multi-cap schemes must invest at least 25% of their assets in each of large, mid, and small-cap stocks to remain "true to their label".
After fund managers raised concerns about the new norms, the regulator clarified that mutual funds can, among other things, facilitate switch to other schemes by unitholders, merge their multi-cap schemes with their large cap plans or convert multi-cap schemes to another category like large-cum-mid cap scheme, in order to comply.
Of the Rs 1,40,000 crore worth of funds in the multi-cap segment, Subramaniam expects at least a quarter to remain in the category. The re-allocation of those funds to comply with the new SEBI norms would lead to Rs 15,000 crore worth of flows into mid and small cap stocks, he said.
Sundaram Mutual Fund has a large-cap fund, a large-and-mid-cap fund and is gearing up to launch a diversified large-cap fund, according to the fund manager.
We're in the process of engaging with our distributors and investors to see what they'd like to do. Depending on their recommendation we'll allow them to switch (to one of the other categories) or continue.Sunil Subramaniam, MD and CEO of Sundaram Mutual Fund
Kotak Mahindra Asset Management Company's Nilesh Shah also said he plans to "explore all options".
“Kotak Mutual Fund works with singular focus of doing what is right for unit holders and complying with letter and spirit of regulations," Shah said in an investor call, according to details shared by the fund house. "We will not buy small and mid cap stocks if it doesn't make sense for our unitholders, contrary to what is being speculated on street.”
Shah also told investors that Kotak AMC will request SEBI to consider creating a ‘flexi-cap' category within or outstide the multi-cap universe. Subramaniam agreed that re-classifying some of the multi-cap funds as flexi-caps, without allocation limits, would be a good option if investors and advisors felt there's value in such a scheme.
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