Kotak Mutual Fund has designated its flagship ‘Kotak Select Focus’ fund as a multi-cap scheme rather than a focused equity scheme. Although this gives the scheme the ability to invest in companies across market capitalisation, it also dilutes the USP of the fund – its focus on selected stocks and sectors. According to SEBI rules, a focused equity scheme can invest in a maximum of 30 stocks.
What has changed and what has not
The name of the fund has been changed from ‘Kotak Select Focus Fund’ to ‘Kotak Standard Multicap Fund.’
The existing investment strategy of the fund says that the total number of sectors focussed will be kept around 50% of the sectors represented in Nifty 50 index.
This has been diluted to “The Fund Manager will generally invest in a few selected sectors, which in the opinion of the fund manager have potential to grow.”
There is no significant change in the asset allocation limits of the scheme. It can devote 65-100% of its assets to equities and the rest to debt. It can invest 0-10% of its assets in REITs and InVITs.
Effect on current portfolio
Kotak Select Focus Fund currently holds 59 stocks. It has an AUM of Rs 17,853 crore and has about 76% of its assets in stock classified as ‘Giant’ by Value Research. The fund is benchmarked to the Nifty 200 Index.
A large number of stocks held by the fund indicates that the fund has already departed from a focused strategy. Placing the fund in SEBI’s focused equity category would have meant selling off, almost half the stocks in the portfolio (to comply with the upper limit of 30).
This may explain why Kotak AMC (Asset Management Company) has decided to designate the fund as ‘multicap’ rather than ‘focused equity.’
The options before you
The changes will go into effect on 25th May 2018. If you do not agree with the change in ‘focus’, you can exit the scheme without paying exit load by 24th May 2018. However, you may have to pay capital gains tax. This will be 15% of your gains in the fund if it’s held for less than one year (short-term capital gains) and 10% of your gains if it is held for longer (long-term capital gains). In case of long-term capital gains, the gains made before 31st January 2018 will be exempted and you will get a tax exemption on gains made up to Rs 1 lakh.