The Rs 5,760 crore multicap fund from PPFAS AMC, Parag Parikh Long Term Equity Fund, is now becoming Parag Parikh Flexi Cap Fund from January 13, 2021. The recategorisation move, which was anticipated, is good news for investors since the fund retains the freedom to dynamically invest across largecap, midcap and smallcap stocks.
For investors, there is nothing to worry. Parag Parikh Flexi Cap, famous for being a local fund with global focus, has not announced any other investment strategy or framework change. This means your fund, for all practical purposes, remains the same. The scheme continues to be managed by Rajeev Thakkar, Raunak Onkar and Raj Mehta. In fact, most of the erstwhile multicap funds are also converting themselves into flexicap funds. The biggest of them all, the Rs 32,000 crore Kotak Standard Multicap Fund was the first to announce the migration from ‘multicap’ to ‘flexicap’.
Flexicap name is more true to label than multicap. Flexicap retains the flexibility of investing across the entire cap spectrum. Multicap, as the name suggests, indicated all types of caps (large, mid and small) are present in the portfolio at all times. This was not accurate because many funds did not have smallcap at all, and adopted a more largeap bias or large & midcap bias.
Ever since market regulator SEBI in September announced change in the previous multicap fund definition, there has been disquiet in fund circles. The reason is not difficult to understand. Multicap mutual funds, which had enjoyed the blessing of a loose â€˜at least 65% equity investmentâ€™ definition, felt the screws being tightened on them as eligible funds for the category were directed to have a minimum 25% investment each in largecap, midcap and smallcap stocks. Since most multicap funds, including Parag Parikh Long Term Equity, did not have the separate 25% allocation to largecap, midcap and smallcap sticks, funds had no other option but to rejig its labelling if they were to comply with new norms.
The only way out, was in fact, provided by SEBI a few weeks later. In November, the regulator introduced a brand-new â€˜Flexicapâ€™ equity mutual fund category. As per norms, a Flexicap fund was required to have a minimum 65% total assets in investment in equity & equity related instruments. This is exactly the same definition that erstwhile Multicap funds had. The loose definition â€” minimum 65% of assets â€” does not specify investment in any specific sub-limit or cap bucket. So, there is leeway for funds to remain flexible in terms of market cap-based investments.
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