Sell off large-cap? | SEBI Rules on Multi-cap MF

This session explains the impact of market due to SEBI rules on multi-cap mutual fund

1) What is multi-cap mututal fund?

small-cap
mid-cap
large-cap

2) How is allocation done in MFs?

3) What SEBI rules say?
25% – small-cap
25% – mid-cap
25% – large-cap
25% – Can be anything
Should adhere the rules on or before Jan 2021

4) What MF AMC would do?
50% can be easily allocated to large cap
25% is MUST & options 25% can be allocated
Funds over 50% should be moved to small cap
Can shift slowly as we have more than 4 months time
Can change or merge the scheme to large-mid cap fund
This rule is applicable only multi-cap fund

5) Impact on market

Obviously, there would be selling in large-cap
But Market will not crash for the following reasons
Most FIIs are interested in large-cap
Will buy at cheaper price
Most funds will allocate 50% to large-cap
If not, scheme name will be changed
If yes, it may lead to rally as well
In short, market may correct a bit, will not lead to Crash

6) Consequnces

Most MF would be renamed
Temporary Boost to small
Small correction in market
Less multi-cap fund in the market

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Jegathesan Durairaj, a mathematician by qualification, an Ex-software professional and now a full time Risk Defined Option Writer. With his Open Book Strategies, he is the most known identity in twitter as itjegan, with huge followers. He had won Zerodha 60 Day Challenge – 10 Times round-the-clock. He is one of the prime Option Writing Trainer and tutored close to 1000 members till now.

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