The HDFC Multi Cap new fund offer (NFO), which was rolled out on November 23, is among the new breed of multi-cap schemes that fund houses are launching, in keeping with a circular by capital markets regulator Securities and Exchange Board of India (Sebi) regarding the asset allocation these funds need to follow.
In September 2020, Sebi came up with a specific circular on asset allocation by multi-cap funds, making it mandatory for the fund to allocate at least 25 per cent each to the large-cap, mid-cap and small-cap companies.
After Sebi’s categorisation and rationalisation of mutual fund categories in October 2017, fund houses were promoting many of their large-cap and flexi-cap schemes as multi-cap funds with higher exposure towards the large-cap segment. This led to either merger or change in categorisation of many of the so-called multi-cap schemes.
HDFC Multi Cap NFO, which will remain open till December 7, is the second scheme from the multi-cap category that has been launched this month. IDFC Mutual Fund launched IDFC Multi Cap Fund, whose subscription closes on November 26, was launched earlier this month. Moreover, Axis Mutual Fund is also set to launch its Axis Multi Cap NFO from November 26.
Portfolio Allocation
HDFC Multi Cap Fund will make mandatory allocation of at least 25 per cent of its total assets each in large-cap, mid-cap and small-cap companies, while the balance 25 per cent of the portfolio will be allocated based on the market view of the fund manager.
The fund will predominantly invest in large-cap and mid-cap stocks. According to the scheme details, the fund will invest 60-75 per cent in large-cap and mid-cap stocks and 25-40 per cent in small-cap stocks. Typically, large-cap stocks are considered relatively safer than small-caps.
The 25 per cent allocation bandwidth to the fund manager will give some headroom to play across the market caps as per varied market conditions. For instance, when there is reversal in trend and the market starts going down, the fund manager may allocate to large-cap companies to contain the downside. In favourable conditions, the fund may increase the allocation towards small-cap companies to give the returns a kicker.
The benchmark index for the scheme is NIFTY500 Multicap 50:25:25 Index.
What Should You Do?
The basic principle of investing in mutual funds is diversification. And, this fund offers, diversification across market capitalisations. The fund could be an option for investors who want to take advantage of diversification across market caps without investing in too many funds. However, it remains to be seen whether the fund manager is able to generate alpha, or profit, for the investors in the long run.
