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Last Updated : Jan 11, 2020 05:36 PM IST | Source: Moneycontrol.com

Mutual funds wrap: Will AMFI’s new categorisation list lead to major rehashing of portfolios?

Currently, the mutual fund industry, which consists of 43 players, offers 26 mid-cap schemes and 21 small-cap funds with the total Assets Under Management (AUM) of Rs 133,496 crore.

The mutual fund industry lobby, the Association of Mutual Funds in India (AMFI), made its first classification list based on SEBI requirements in October 2017.

The list considered the top 100 companies in terms of market capitalisation as large-caps, the 101st to 250th companies as midcaps and the 251st onwards as small-caps which was independent of NSE BSE large small mid classification.

In order to enable investors to make accurate comparisons of schemes, SEBI introduced the categorisation and rationalisation of mutual fund schemes in October 2017.

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This was done to ensure that an investor is able to take a more holistic and informed decision while investing in a particular scheme.

The market regulator had issued a list defining largecap, midcap and smallcap companies in order to ensure uniformity in classification in the investment universe for equity mutual fund schemes.

Since then, AMFI, in consultation with SEBI and stock exchanges, prepares a list of stocks once  in six months based on the data provided by the BSE, the National Stock Exchange (NSE) and the Metropolitan Stock Exchange of India (MSEI).

SEBI’s last categorisation exercise had led to the large scale restructuring of mutual funds, especially in mid and smallcap funds, as mutual funds had earlier adopted classification provided by the exchanges before the rollout of SEBI’s classification.

Earlier, there was no standard definition to classify companies as large, mid or smallcap. Each fund house would employ its own criteria for deciding the same.

This would lead to huge differences in the classification of companies by various asset management companies. Moreover, for investors, comparing two funds from the same category would sometimes result in an apple to orange comparison

The diversified equity schemes could get managed. However, fund managers will have to restructure, specially the mid and small cap sector theme schemes to suit SEBI.

Currently, the mutual fund industry, which consists of 43 players, offers 26 mid-cap schemes and 21 small-cap funds with the total Assets Under Management (AUM) of Rs 133,496 crore.

New List

Now, in the new list issued by AMFI on January 3, five scrips were promoted from mid-cap to large-cap category, namely- Info Edge (India), Adani Transmission, REC, Kansai Nerolac and Muthoot Finance.

Similarly, five stocks were demoted from large-cap category to mid-cap. These five stocks are Cadila Healthcare, Indiabulls Housing, New India Assurance, Vodafone India and Yes Bank.

Twelve each were moved from small-cap to mid-cap category and mid-cap to small-cap.

In the new AMFI list, within the mid-cap category, two new stocks were added—IRCTC and IIFL Wealth Management, and in the small cap category four new scrips were added.

Impact

“Will this lead to another round of shuffling of stocks? If this proposal goes through then the cut-off for large cap will drop from its current market cap of Rs 22,000 crore to Rs 16,000 crore. Similarly, the cut-off for mid caps will drop from Rs 11,000 crore to around Rs 6500 crore,” said Anoop Bhaskar, Head-equities, IDFC Mutual Fund.

Also, this will once again need the restructuring of sector schemes that has cost on schemes to be borne in the net asset value by an investor.

Now, the mutual fund industry is awaiting for AMFI to spell out the period of frequency for such revision of lists so investor is aware beforehand when his mid and small cap schemes portfolio will be restructured.

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First Published on Jan 11, 2020 05:35 pm
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