Kotak Multi Cap Fund - A Diversified Equity Solution for Long-Term Wealth Creation

Kotak Multi Cap Fund is designed to provide investors with a well diversified equity allocation across large cap, mid cap and small cap companies. For those seeking a simple and structured introduction to multi cap investing, this category follows a rule based framework that ensures balanced exposure across all key market segments. As per SEBI guidelines, the scheme shall maintain a minimum of 75% allocation to equities & equity related instruments aiming to generate potential long term capital appreciation while distributing risk across different market capitalisations. The fund follows a bottom up investment approach supported by the BMV (Business, Management, Valuation) framework allowing the fund manager to identify fundamentally strong businesses with sound management and reasonable valuations. Along with equities the scheme may also invest in debt instruments, money market securities, units issued by /InvITs offering additional flexibility to manage risk and optimise overall returns.

Key Takeaways

Diversified Equity Exposure - As per the MultiCap Fund Meaning defined by SEBI the scheme maintains a minimum 75% allocation to equities & equity related instruments with at least 25% each in large cap, mid cap and small cap companies ensuring true multi segment diversification

• Research Driven Selection - Follows a thematic plus bottom up approach supported by the BMV (Business Management Valuation) framework for disciplined stock selection
• Flexible Investments - Can invest in debt, money market instruments, REITs/InvITs, and overseas securities.
• Risk Management - Uses derivatives, internal exposure limits and securities lending for controlled portfolio risk
• Investor Profile - Suitable for medium to long term investors seeking long term wealth creation with equity diversification

Investment Strategy - Kotak Multi Cap Fund

1) Core Investment Approach

• Kotak Multicap Fund Invests in equity and equity linked instruments across large cap, mid cap and small cap companies
• Categorization based on SEBI Master Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/90 (June 27, 2024) and subsequent amendments.

2) SEBI Mandated Minimum Allocation (75% Equity Exposure)

a) Large Cap Allocation

• Minimum 25% of total assets in equity & equity related instruments of large cap companies
• Large caps - 1st to 100th companies by full market capitalisation

b) Mid Cap Allocation

• Minimum 25% in equity & equity related instruments of mid cap companies
• Mid caps - 101st to 250th companies by full market capitalisation

c) Small Cap Allocation

• Minimum 25% in equity & equity-related instruments of small cap companies
• Small caps - 251st onwards in terms of full market capitalisation

d) Stock Universe Source

Stock list as per AMFI classification updated half yearly

3) Sector Selection Framework

Sector choices driven by:

• Growth prospects of businesses
• Valuation attractiveness
• Fund manager retains discretion based on medium to long term outlook

4) Portfolio Construction Methodology

a) Thematic + Bottom-Up Approach

• Combines thematic insights with bottom up stock picking

b) BMV (Business Management Valuation) Model

Assessment of:

• Business environment and competitive landscape
• Management capability to execute and scale
• Valuation metrics such as discounted cash flows, P/E ratios and other fundamentals

5) Use of Derivatives

May use exchange traded derivatives for:

• Hedging
• Portfolio rebalancing
• Other SEBI permitted strategies
• Detailed derivative usage disclosed in SAI

6) Debt & Money Market Investments

May invest in listed/unlisted, rated/unrated debt or money market securities
Investment must remain within the prescribed asset allocation limits

a) Investment in Unrated Debt

• Requires prior approval of AMC Board
• Must comply with Trustee approved parameters

b) Investments Outside Internal Parameters

If within SEBI limits but outside internal parameters:

• Requires approval from both AMC and Trustee Boards

7) Inter Scheme Investments

Scheme may invest in:

• Other schemes of Kotak Mahindra Mutual Fund
• Schemes of other mutual funds
• No additional fees will be charged
• Subject to SEBI regulations on inter scheme investments

How the Scheme will allocate its Assets?

Multi Cap Funds by design answer the question of why multicap by mandating participation across market caps

1) Indicative Asset Allocation

*Minimum allocation in equity & equity related instruments

- Large Cap Companies - 25% of total assets
- Mid Cap Companies - 25% of total assets
- Small Cap Companies - 25% of total assets

#Debt instruments include securitised debt (excluding foreign securitised debt). Investment in securitised debt can be up to 50% of the debt & money market allocation. Money market instruments include commercial papers, bills, treasury bills, government securities (≤1 year maturity), call/notice money, certificates of deposit, usance bills, and other RBI-specified instruments.

2) Cumulative Gross Exposure

Total exposure via equity, debt, derivatives (including fixed income derivatives), repo transactions in corporate debt securities, REITs, InvITs, and other permitted securities shall not exceed 100% of the scheme’s net assets.

Cash or cash equivalents with residual maturity <91 days (government securities, T-bills, repo on G-Secs) are considered non exposure.

3) Debt Instrument Guidelines

Investment in debt instruments with structured obligations/credit enhancements:

• Not more than 10% of debt portfolio per instrument
• Group exposure ≤ 5% of debt portfolio

Scheme does not invest in debt instruments with special features as defined under SEBI regulations

4) Foreign Securities Allocation

Up to 20% of net assets in foreign securities from equity allocation (post minimum domestic equity allocation).

Investments may include GDRs, ADRs, overseas equities, bonds, mutual funds or other permissible instruments.

Maximum limits per mutual fund:

• US $1 billion in overseas securities, within the overall industry limit of US $ 7 billion wherein US $ 50 million would be reserved for each mutual fund individually, with in the overall industry limit of US $ 7 billion or such limits as may be prescribed by SEBI from time to time.
• US $300 million in overseas ETFs or such limits as may be prescribed by SEBI from time to time.

Investment headroom of 20% of average AUM in overseas securities over previous 3 months is available for investment

5) Cash Holdings

Scheme may hold cash for:

• Meeting redemption requirements
• Settlement lags between deal and value dates
• Participating in IPOs meeting size criteria

6) Use of Derivatives & Hedging

• Scheme may use derivatives and hedging instruments as permitted by SEBI to reduce portfolio risk
• Securities lending permitted up to 20% of net assets with 5% per intermediary
• Participation in corporate bond repos allowed, gross exposure ≤ 10% of net assets

7) Internal Risk Management

• Scheme follows internal norms for limiting exposure to individual scrips, sectors and instruments subject to periodic review
• Actual allocations may vary within SEBI limits and based on market conditions

Conclusion

Kotak Multi Cap Fund offers a structured and flexible approach for investors seeking long term wealth creation through a diversified equity portfolio. The portfolio is constructed with exposure across large, mid and small cap companies guided by research based stock selection with flexibility to use derivatives and international exposure as per the investment strategy. Its robust risk management framework and adherence to SEBI regulations make it suitable for investors with a medium to long term horizon who are comfortable with equity market volatility. Investors comparing Multicap vs Flexicap difference should note that while Flexicap funds offer allocation freedom, Multi Cap funds like this one follow a SEBI defined rule based structure ensuring consistent exposure across market segments.