The market regulator SEBI has issued new rules regarding the midcap category of mutual funds. According to the new rules, a multi-cap fund will have to invest 75 percent of the total amount in the stock market. Until now, its limit was 65 percent. Also, out of this 75 percent amount, 25 percent will have to be invested in large-cap stocks. At the same time, 25 percent midcap and 25 percent will be invested in small-cap stocks. Investors of the stock market will benefit greatly from this decision. Let us tell you that the new rules will be applicable from January 2021.
What are Mutual Funds?
If put in easy words, money from many investors is deposited in mutual funds in one place. Then a fund manager invests in the stock market and other places like government bonds etc. Mutual funds are managed by asset management companies (AMC). Each AMC usually has several mutual fund schemes.
What are MidCap Funds?
As the name suggests, midcap mutual fund schemes invest in medium-sized companies. They have the potential to become a large-sized company. Of course, there is more risk and volatility with them. But higher returns can also be expected from them. However, if you cannot take too much risk, nor invest in the long term, then it is better to invest in relatively low-risk options like large-cap or multi-cap.
How do you know which Company is Midcap?
In terms of market cap, the first 100 companies of the stock market are called large caps. In this list, companies ranging from 101 to 250 are kept in the midcap category. At the same time, companies beyond 251 are placed on the list of small-caps.
What will be the Effect on Investors from this decision of SEBI?
Experts say that the new circular shows its better label regarding multi-cap. Currently, the majority of these funds are large-cap. This is why it becomes difficult to differentiate between multi-cap and large-cap. Currently, there is 70 percent of large-cap stocks in every multi-cap. The figure is 22 percent for mid-cap and 8 percent for small-cap. However, it is being speculated that in the short term there may be a problem of liquidity in mid and small-caps. Because now fund managers will increase investment rapidly. In such a situation, low liquidity (low turnover in shares) can increase the tension of the manager.