 Hello everyone and a very good afternoon. We are back with another episode of Entrepreneur India's Smart Investing Series, your weekly dose of personal finance that can help you make better decisions with your money. I am Shupra Singh, Chief Correspondent and Entrepreneur India and your moderator for today's panel. So today's episode is about SEBI's recent proven multi-cap funds under which these funds are now mandated to invest 25% each in large-cap, mid-caps and small-cap stocks. So we've gathered today to discuss how does this move impact investors who are invested in the multi-caps category. So let me start by laying out the ground rules for our attendees. We request everybody to please attend the webinar from a quiet room with headphones and sit in an area with maximum internet signal so that to avoid any kind of lag during the webinar. We encourage participation so please keep your questions ready, drop them in the Q&A box present at the bottom of your screen. For those of you who are attending through Facebook, please drop your questions in the comment section in Facebook Live and at the end of the discussion, we'll take up all the questions and give them answered by our experts present with us today. So to introduce you all to our speakers, we have with us today Radhika Gupta. She's the CEO of Edelweiss Asset Management. Radhika has in the past also built her own venture for front capital management which was an alternative asset management firm which was later acquired by Edelweiss in 2014. In her tenure with Edelweiss she has successfully led the company's acquisition of JP Morgan's Mutual Fund Business and Ambit Capital's AIF business in 2016. Radhika is also a board member of Amphee. Welcome Radhika and thank you very much for joining us today. Thank you for having me. Our second speaker is G. Pradeep Kumar. He's the CEO of Union AMC. Mr. Pradeep Kumar is a BTEC PGDM from IM Ehendabad and a veteran in the Mutual Fund Industry. During his professional career of more than 25 years, he has worked with IDX Investment Advisors as the Chief Marketing Officer, UTI Asset Management Company as Senior Vice President and UTI International Limited as Director and CEO. Welcome Pradeep. Thank you very much for taking out the time to join us today here. So first up you know so I want to start with so it's been a while since the move came out and you know initially we also I mean the initial reactions were that there will be a lot of outflow from the large cap category and a lot of inflows in small cap and mid cap but now that it's been a while and you know the AMCs have gotten some time to comprehend the move completely. So now I want to understand you know how do you see that you know the new rule impacts multi-cap funds and the stock market in general. So let's start with you Radhika. I think you know what happens unfortunately or fortunately when circulars like these come out is and while they're very important circulars we move into very quick analysis mode. In fact on this circular I think it came out on Friday and by Friday evening there were comments on the future of small caps what's going to go wrong in the large cap universe by Monday people had put research reports out on this without understanding that look this is a nuanced issue. The multi-cap category is a 1 lakh crore category it's not a joke and ultimately asset management companies advisors will do what is in investors interest and that is a thoughtful decision. So just because a circular has come out and mandates 20-30,000 crores of buying in small cap funds which some funds may be too large to do doesn't mean people will irresponsibly go ahead and do that. People will take time to evaluate their options and I think that is what is happening and people will have sensible dialogues with regulatory authorities. So I think right now what people are doing is having our dialogue with SEBI as to what you've seen I've just written a letter to SEBI also on this front as to what the potential options in the multi-cap space are. Now if you look at from an investor point of view I would agree that when an investor invested into multi-cap funds they came in with a mandate that was similar to the BSE 500 benchmark which is about 20% mid and small cap and the balance 80% large cap and which is what most multi-cap funds are mirroring. The new proposed multi-cap category by SEBI is a far more aggressive fund because it is 50% mid and small cap so I think one funds will have to decide what they are going to do either a fund in the multi-cap category says okay I'm going to change my constitution to meet this or I'm going to swap to another category. This is that I think investors will have to take a very thought through decision fund by fund multi-cap fund by multi-cap fund as to what they want to do are they come from a great category and by the way some investors will say you know I'm comfortable in which case they should stick and if they are not comfortable with that is their fund migrating should they migrate so I just think it has to be a lot more thought through decision and I think we will receive that communication from fund houses within the next few weeks but certainly a weekend or a week is not a time to take a decision. Would you like to add your update? Yes, I 100% agree with what Radhika said that you know people have a tendency to jump to conclusions you know you have you know it's very easy to put an excel sheet and say that okay one like 46,000 crores is a multi-cap figure out of that you know 36,000 crores need to move into mid-cap and small cap to have the rebalancing so 24,000 crores for mid-cap or small cap 12,000 crores for mid-cap this is a market cap this much money will go and suddenly everything will shoot up but it's all it's all fine you know if you if all you have to do is run an excel sheet you know it's a fine calculation but market doesn't move on excel sheet basis and that is why over that weekend itself silly came up with further clarification saying that you know increasing the allocation to mid-cap and small cap is one of the options available to AMCs there are other options available okay so it is not necessary that you know every fund will go and buy mid-cap and small cap stops just to rebalance in fact i think all all fund houses all leading fund houses have made it amply clear that they are not going to buy mid-cap and small cap at exorbitant prices just to comply with the circular so there are other options which include you know merging multi-cap fund with you know other funds for example you know a large and mid-cap fund etc so you know we as mutual funds we are examining various alternatives available to us we have also been engaging with sebi at at industry level amphy is very actively engaged with sebi to make sure that you know there is no disruption in the market and the interest of investors is not you know not affected because ultimately what sebi is interested in and what we are interested in it's all the same thing we want to do what is the best thing for the investors so you know i think the solution will emerge there are so many possibilities and you know you also would have seen reports in the media talking about another possibility which is you know a new category being created like a flexi cap fund so you know if something like that happens you know it's it's all like a storm in a teacup you know nothing will happen to the market so it's it's something you know on which we need to wait and see what is the response what are the decisions that the mutual funds individually and at industry level what emerges before you know jumping into any any conclusion and i would like to just add that i too am an investor and you know probably the the largest exposure i have in my portfolio is towards multi-cap funds and i have not touched my portfolio after the circular as an investor i'm waiting because if i invested with 10 and 20 year horizon i'm not going to you know undertake any any nature response just because of the circular i trust the mutual fund you know with whom i place the money all right so as you rightly said you know there will be multiple options in with the amc's and with time we'll get to know you know any individual amc's will be taking individual steps but if you have to like you know one by one look at the possible options so for instance for for those funds who do re-adjust their allocation to different caps so i mean so far you know the multi-cap funds since i mean the category average has been 70% large cap funds which is essentially what has been driving driving the you know returns so in that sense when the the after the reallocation should investors you know brace for higher volatility and extended period of period of poor returns after a particular fund kind of increases their exposure to small and mid-caps i think look if you are going to be a fund with 50 percent mid and small cap that is a very different risk rate than 20 percent on cap i think you just have to realize that um there is one argument and this is just my personal opinion on the proposed new multi-cap category see you need some funds that exist that are a little flexible from a fund management point of view where there's really scope to do alpha generation i think if i had asked my cio he always and i had always asked him you know what is your favorite fund category and he used to say multi-cap because it gave me the flexibility to play across the cap range depending on market conditions so multi-cap is a very flexible category where the fund manager could really play across the range i think if you had to come to the proposed category the flexibility does go away one third one third one third is also something i can do individually by combining my own large cap mid-cap and small cap fund i don't need someone so it's like a quasi passive fund in my view with a slightly higher risk rate so that's my take on the new category what about you Pradeep so yeah um i i i entirely agree again and i i would like to just add that if any investor in a in a multi-cap fund uh eventually find that the fund in which you know he is invested he is simply going to um you know convert it into um the new sebi circular and increase exposure to multi-cap and small cap that is is going to be a different product from the one which he had signed up okay because you signed up thinking that the fund manager has complete freedom the fund manager will exercise her judgment about you know which multi-cap which market cap is is more suitable or more attractive and if that freedom is taken away and there is a more straight-jacketed approach that may not be the fund that the investor signed up for in which case the investor will need to take a call whether this is something you know that meets their uh you know risk appetite this meets their investment goals and most of the investors you know would also have good advisors to help them and together they will need to sit down and take a call on that but as of now my view is that there will be very few instances of AMC's simply uh you know complying with the new circular by increasing the exposure to mid-cap and small cap and i would also like to add that you know that seems to be that realization seems to be sinking in the market also which is why after that initial jump in mid-cap and small cap last monday things seem to have settled down so actually we have a you know uh i mean what are you just the point that you were just making we have a query on facebook from one of our viewers who's asking uh will there be a further rally in small cap stocks in the coming months triggered by you know mf house is buying in small and mid-cap category oh i mean my take on this and i had tweeted something around this is that you know if you invest and i think pradeep said this about his own investment in multi-cap if you are investing in small cap funds or mid-cap funds i assume you're doing it with a seven to ten year horizon otherwise you should not be making that investment in the first place if you're doing it because there's going to be a three four five seven percent rally in mid and small caps over a seven year horizon one that's not going to make a difference i think if you want to invest in mid and small caps you should invest for the right reason and that right reason in my opinion can never be a circular because one you don't know whether this rally will happen as pradeep said because of a circular just because in excel sheet says you have to buy this much small cap doesn't mean people will go ahead and buy it secondly you know mid and small cap is a very specific category it requires a certain risk taking appetite and ability for diverse volatility a certain time horizon and you should buy mid and small cap funds and i actually think you should buy mid and small cap funds as a part of your asset allocation but not because of the circular because they have underperformed large caps for a significant period and at some point there will be a reversion in that so i'm saying buy the asset class for the right reasons not for a circular because in seven years i can tell you the circular will not happen so in that sense you know from diversification yeah please please please uh go ahead sorry yeah so so you know again just to just to supplement what rathika said see we we always advise investors and even the distributors that every investor should have some allocation to small cap and mid cap and we typically compare it with you know spice in the food you need certain quantity of spice you need certain quantity of salt but you can't say that you know spice will form the core of your meal right that's not healthy you should have everything in the right quantity so if somebody you know a prudent thing for example would be to take a couple of ideas i would like to have 10 percent allocation to small cap stocks in my portfolio maybe 15 percent allocation to mid cap stocks okay so you know to to have a straight jacketed approach is is probably not you know going to help most investors unless they have higher risk appetite you know it's it's up to individual investor and if they take that call it's perfectly fine but again you know to go and buy small cap or mid cap thinking that you know there'll be a an artificial rally in those stocks is going to be you know very naive in my view and not going to really help investors because you know the market is very smart i think people who think that they are smarter than the market typically end up paying a heavy price so we must respect the market we must respect the fund management industry and regulator so there will be a a more a nuanced solution that will emerge and each in each amc like we said earlier we'll take a call you know keeping in mind the interest of their investors so jumping into small and mid cap just because you think there'll be a short-term rally will be you know very disastrous can be very disastrous okay so uh so from diversification point of view do you think that this move will actually help investors to kind of diversify you know those who are who didn't have exposure to i mean separately exposure to smaller uh mid caps but now they will be uh i think small and mid cap exposure is something that an asset allocation should determine for an investor i don't think diversification should be forced on an investor for instance i am a reasonably conservative investor so most of my investments are actually in balanced kind of funds i'm a reasonably conservative investor i don't hold large small cap to force a certain amount of mid and small cap down my throat because of diversification i don't think that's right um i think mid and small cap allocation should be a function of the asset allocation and the risk taking appetite because we've seen enough times after small cap rallies investors coming at the wrong times chasing returns and then they have a terrible experience it's very hard to digest the volatility especially in small caps there are single day small caps which are down 20 30 percent in a day in fact you know i mean you'll get comments from investors a small cap stock will be down 20 percent a day and you'll immediately start getting questions from investors so you should never force diversification of this kind of risk grade things like small cap mid cap credit risk these are satellite allocations for people and i don't think they should ever be forced down people's throat absolutely and uh it's it's also not you know uh correct that people are hugely underexposed to small cap if you just look at the the AUM numbers you know large cap asset category has about 1,48,000 crores AUM at the end of august while small cap asset category has 52,000 crores and you know the the mid cap category has 88,000 crores so you know mid cap is is more than half of the last cap AUM the mid cap funds and small cap funds are you know about one third the size of the large cap AUM so these are you know quite meaningful uh exposures in my view given the representation of small cap and mid cap in the market as a whole if you take you know the the nifty 500 or the bc 500 etc in which you know the share of small caps is probably in single digits um you know to have this kind of exposure to small cap and mid cap funds is quite meaningful so investors in general have been taking meaningful exposure to small and mid cap fund small and mid cap stops through you know focused funds I mean dedicated funds in in those areas so again you know forcing something on multi-cap um you know may not be may not be uh what they had really you know signed up for okay so we have I mean this is not this is not really a question but a view from one of our viewers Rajendra Joshi who's saying that uh the current category should be reclassified as flexi cap a new multi-cap category as per SEBI notice should be created so in the interest of investors default should be to continue in the existing category however in their own decision they can switch to the new category so what do you have to say about this I mean this gentleman is suggesting that we reclassified as a flexi cap category instead honestly I think that's the right thing to do because flexi cap I mean you call it multi-cap you call it flexi cap you need one category where equity fund man I mean if active fund management has to exist you need one category where active fund managers can take asset allocation controls across the market cap curve and pick good companies good I mean with a big small whatever um and you need one category whether that category is multi-cap or flexi cap it's all nomenclature so I think you definitely need a flexi cap category if I were to hazard a guess if flexi cap came up for instance we would be very interested in changing our multi-cap fund to a flexi cap fund if that were an option because we just think it's a better risk profile product than the current multi-cap proposed multi-cap absolutely because um you know that's that's something that can address all the concerns you know the concern of the regulator that fund should be true to label concern of the AMC's about you know being consistent with what was what was a value proposition to the investor because you know we also need to look at you know when we sold multi-cap funds even today when we are selling multi-cap funds what exactly are we telling the investors we having telling them that you know this is a fund in which the fund manager has a flexibility flexibility the fund manager will decide you know what is the what is the best thing to do at any given point of time and decide their location so that is that is a value proposition that we have been offering to investors so I think there there should be a category which allows the mutual fund industry to continue to offer that value proposition you call it flexi cap or you call it x y z whatever it should be very good to have such a category in which you know the the flexibility is maintained all right I hope okay so to talk about the agh yeah oh all right so you know to talk about the agha to the AMC to talk about any value fund or merging it with another fund so in either case what is it that the investor should know how does it impact us either of the two you know impacts the existing investors in multi-cap funds Kipra I missed your last question I couldn't hear it very clearly am I audible now yeah I think there is a bandwidth issue at your end Kipra I can't hear you maybe you can switch off your video for a few moments yeah I think she's logged off and I'm assuming she'll log back on yeah we'll just wait for a minute yeah I'm sorry I'm sorry for the interruption my internet was kind of playing up am I clear now yes okay so as I was asking so you know to talk about the other two options that AMC's have of either reclassifying the fund or merging it with another fund so in either of the cases what what is it that the investor should know if either of the two happens with their existing multi-cap fund how does it what changes for the investor no I think if you're merging it depends on what fund you're merging into for instance large and mid in my view is a pretty similar category to the existing multi-cap fund so that may not be such a bad thing just one thing to keep in mind is that you know as funds get bigger in size they also get significantly less nimble in their ability to do things so a merger of two very large funds creates another very large fund so that's just something to keep in mind and then it clearly becomes a large and mid fund if they're flipping categories I think we already talked about flexi cap there are a few other thematic categories like ESG etc that have been proposed I think then you really need to evaluate category by category ideally what investors should think is what did I sign up for when I bought this fund where did it fit in my asset allocation and after the change what is the fund going to look like and does it reasonably match that if it doesn't reasonably match then I need to do a rethink if it does then I'm reasonably okay so you don't want turnover for the sake of turnover also yeah very very true it's very important because all AMCs are probably not going to take the same action so there could be AMCs you know depending on their the current construct of their portfolio there will be those who decide that you know it's better to merge it with a large and mid-cap fund like Radhika said listed and you know there could be another AMC which thinks that it's better to merge it with a large cap fund okay so there are there are different possibilities and individual cases the investor will need to take a call looking at their overall portfolio how exposed they will be to small cap stocks as a result of that particular merger and how exposed they will be to mid-cap stocks as a result of that that action and then you know decide if they are over exposed then you know there will be some reallocation that will be warranted but if it stays within their overall risk appetite yeah then then it's fine but it's very important to realize that there is no uniform solution or a uniform approach to this in case you know merger of schemes is what the AMC ends up doing so each individual investor will need to take a call depending on their overall portfolio exposure to mid-cap small cap and last cap stocks okay so uh one of our viewers uh Sasanapuri Ravi Kumar I would like to hand him over the mic he's he has a lot to I think share and discuss with our speakers uh Ravi please switch on your uh audio Sasanapuri Ravi Kumar please switch on your audio if you want to ask uh our experts a question shall any please give him the mic yes we can hear you please ask your question hello yes Ravi we can hear you uh the question is uh uh it it should be according to the mandate given by Sabyoli because what happens when uh the investors or distributors higher ytm it will automatically uh lead to higher risk we have not expected a black swan event like uh covid but it happened so uh always uh stick to uh what the mandate as per uh Saby means a multi-cap should not be like a large cap multi-cap should have all exposures even large caps also have higher risk even some banks in the large cap have failed even some uh even some big big psus and avratras which were large caps also failed so uh it should not be like uh a particular market cap it should be like uh multi-cap means multi-cap uh that's Radhika can i respond to this please yeah so so absolutely we we entirely agree with you in the sense that uh funds should be true to label okay so whatever Saby stipulates all mutual funds will follow that we really i mean it's not something on which you know we have an option not to follow so if Saby says in multi-cap funds you know 25 percent should be mid-cap 25 percent should be small cap all mutual funds will follow that okay if Saby comes up with a with a different you know guideline in future or they create another category so then we will we will consider that at that stage but not following Saby circular is not an option no mutual fund will do that i would only say that i have been and i think you've been some of the biggest advocates of true to label both in equity and fixed income schemes uh schemes should do what they are meant to do and they should follow the guidelines even beyond regulatory guidelines i think even when uh regulatory guidelines are unclear we've tried to be more true to label so i think it is an absolutely necessary thing and the question of violating what Saby says obviously as Pradeep said does not exist but i think giving the consumer what he signs up for is the core of our business because ultimately we are in a business of trust so i don't think that's a question all right uh thank you ravi thank you very much uh shall we please hand over the mic to neerat he also has a question yes neerat please ask your question just say uh just say business advantage fund meh hota hai he automatically equity to debt switching hota hain this is multi-cap man large means small cap my automatic switching yeah i suppose okay i think i can take that so i think yes balanced advantage fund may have switched between equity and debt in fact back now after the Saby categorization meh hain saab se sapsa zada flexible category hain fund manager ke liye i think erstwhile multi-cap fund jab hum chalate the uh without free the Saby guidelines you were switching between multi large and mid-cap ab model ke basis peh karte the hain fund manager discretion ke basis peh karte the hain i think that is each individual's call just like back maybe some people will do it basis model some people will do it basis discretion kisi ka aisa model loga kisi aisa model loga in the new Saby categorization of multi-cap api switching nahi kar pahingi kindi purchase purchase purchase ka aapka mandate hota hain in a proposed flexi cap aap kar pahingi but api kare hain that in a BAF context there was a very nice thing where you could switch between equity on debt both flexibility pehle time meh multi-cap meh rahi thi or you know automatically large mid small aisa to the best of my knowledge you know um no AMC is really following such a model abhi aaj kal um kari abhishayat the kond funds hai to us meh aisa hi hone ki chances hai but it's not a very very popular strategy right now because fund managers hain aisa um stocks ke upadhyan dehte hain jo stock ache hain jus meh growth potential hain price reasonable hain o stock lehte hain aur market cap ke upar you know uttina focus nahi in a multi-cap fund. I hope Neerit's question got answered so before I take any more questions from zoom I have one more question on facebook uh bunch is asking that I I am already invested in small cap stocks uh so does it make sense to stick with my multi-cap uh investment anymore this of course I mean this applies when you know the his fund actually chooses to kind of reallocate the this thing I think Pradeep said this first think about how much small cap allocation you currently have are you comfortable with it and say you had you know 10 small cap allocation after the multi-cap chain you're going to have 20 small cap allocation hypothetically now you need to decide am I comfortable with that 20 percent there are two ways to get rid of that 20 percent either you cut down your existing small cap fund or you come out of your multi-cap fund so do this math that how much do I have today what am I comfortable with and then how much will I have in the future all right okay so uh next up is Dutt Sharma shall we please handle the mic Dutt Sharma hello Radhika this is for you specifically yes uh that you're not clearly audible can you please speak a little loudly okay I said this is uh specifically for Radhika because each fund out such as a huge category of funds and catering to a bouquet of products that they have brought up from time to time as and when the meal has arrived now suddenly out of the blues when Sebi says that you're going for 25, 25, 25 after donkey's number of years of the bouquet being served and the next day on a Sunday to say that you can change over a month to another or have a plexigap fund was there a need to do this at all is my question okay this is a tricky question that's how then I don't know why you specifically addressed it to me but you have I would have to answer it um and Radhika can add his view on this see I am you know not the regulator and I think a lot of thinking happens I think as an as a head of management company I can speak and I can only say that a few things one is that I don't believe that we should have I've actually been an advocate of less categories of funds I just think between so many equity categories and some 20 fixed income categories we have too few too many categories of funds my father still does not understand the difference between all the short-term debt categories he's like me to tell savings account well up once our fund so I generally think we have an industry need to simplify um so I don't believe in a large number of funds a large number of NFOs I'm generally very against this kind of stuff that said you operate within the guidelines of regulations because you are a regulated industry what we would want to do is again in the maximum investor's interest we can retain multi-cap in the way that people bought multi-cap because for instance we build our multi in fact we build our multi-cap fund up from 20 crores to the 500 crores or in the last two three years we want to retain it in the way that investors came into it and we will do whatever to retain it in that form whether I have to put a flexi cap into it or whether I have to merge it into a large in mid cap but I don't want to change the color of the fund to upset people who have already come in the first interest will always be to serve existing customers and ideally I would like to do this without proliferation of too many funds so that is my take on it I unfortunately can't give a very philosophical answer as to what was right or wrong because I'm a participant of an ecosystem that has to follow existing regulations yeah I think um you know Sydney Sydney had its own reasons which they explained um you know why they why they did this um every every individual has a right to you know agree disagree which is fine but as responsible participants in the industry we have to follow what the regulator wants us to and we will it's it's just that you know we are trying to figure out a way in which this can be achieved without being very disruptive and while um you know holding our our promise that we originally made to our existing investors like Radhika said you know there is a there is a certain value proposition that we made to our investors in multi-cap fund saying that you know this is how we will run the fund and if you all of a sudden change that yeah there is there is a problem as far as the existing investors are concerned and we need to address that which in going back to what we said in the beginning is something that you know we are all um uh working on and we'll come up with a with a solution which you know protects the interest of investors okay so I'll take up one last question from Facebook uh even though this is not directly related to the topic today I'll still take it up uh so uh Deberge is asking my investment in DSP small cap fund is still in the red though investments in large and multi-cap funds have largely recovered should I exit the small cap fund uh so I would not want to comment on especially when it doesn't concern our own fund I would only say that uh while uh large caps have seen a significant rally there has been an underperformance in the mid and small cap category related to large caps so small caps as a category have trailed a little bit again I don't want to comment on the performance of an individual fund because that would not be fair to me uh fair um I think when I evaluate a fund I have some principles obviously if I'm investing in a small cap fund I give it time um and I also look at how the benchmark is done so if my fund is in line with all small cap funds has my fund done significantly worse than all of them has it done significantly worse than the benchmark then I have a reason to be alarmed but if the small cap category is down over the same period and my fund is also down a little bit then I don't get as alarmed so that would be my broad thought absolutely can't comment on uh individual funds but um just to give you um what is our view as union mutual fund uh how we view the large mid and small cap categories according to our analysis and our current view is that all three categories offer similar growth potential for the next five to ten years okay or you know so so if you choose your funds you know well and plus the fund managers to choose the right stops all these categories will give you more or less the same set of growth in in future so shifting from you know one market cap to another may not be you know the the best thing to do for most people but individual funds uh is a is a different call that um you know you will need to sit down with your advisor I would once again you know very strongly recommend that you you consult a good distributor or a good advisor and take a call on what needs to be done with the individual fund all right uh so that brings us to the end of our discussion today so you know just to sum up I think what I have gathered from the conversation is that right now investors should wait and watch see what the individual AMCs do and accordingly take a decision on their multi cap funds I hope that our viewers had some good takeaways from the discussion today and well thank you very much again to both Radhika and Pradeep for joining us today thank you very much all our viewers for you know joining us today in this very insightful discussion we had uh have a good day everybody please stay stay stay stay healthy uh thank you again thank you thank you and thank you Radhika thanks Pradeep