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Before you invest in mutual funds, there is always a dilemma with regards to the category of mutual funds you should invest in. Before you choose small-cap, large-cap, or mid-cap fund funds, you must know that each type comes with certain advantages and disadvantages. While large-cap funds provide stability to your portfolio, small-cap and mid-cap funds offer comparatively higher returns, but comes with a higher volatility. Nevertheless, there is one category of mutual fund that stands out due to its considerable flexibility and that is the multi-cap fund.
In other words, multi-cap funds are diversified equity mutual funds that invest in the stock of companies with different market capitalisations. They can provide higher returns as compared to small cap, mid cap, and large cap mutual funds. The investment is made in varying proportions to meet the investment objective of the mutual fund. Additionally, multi-cap funds offer diversification and rebalancing of the portfolio at a lower cost.
Best multi-cap funds invest in equity shares of companies with different market capitalisation. Instead of investing in a particular capitalisation, best multi-cap funds incorporate large-cap, mid-cap, and small-cap equity stocks in the portfolio in specific proportion. As compared to small-cap or mid-cap funds, these are less risky and more popular among investors who want to invest safe and are less aggressive about returns. The fund manager will pick stocks across capitalisation and sectors as per his/her outlook of the market. Thus, investors can stay free from anxieties regarding investment. Apart from stock selection, the fund manager keeps switching holdings in the fund between small-cap, mid-cap, and large-cap stocks based on market movement.
Since these funds are invested in the stock of multiple companies, during the Bull run, they deliver huge returns, and sometimes, they even outperform pure mid and large-cap funds. This happens as during a bull market where the underlying stocks of the funds are able to unlock their values and tap the growth opportunities.
Here are a few aspects an investor must consider before investing-
Multi-cap funds aim for wealth accumulation by investing in stocks, which offers the best combination of value, risk, and high growth. The stock selection is based on the investing style of the fund, which can be growth investing or value investing. Moreover, the fund manager may consider other quantitative measures like Price Earning ratio, Earning Per Share, and enterprise value to ensure that your portfolio is composed of only quality stocks.
Like any other equity funds, multi-cap funds also face the market risk wherein an overall rise or fall in the value of the stock index leads to fluctuation in the desired fund value. Such volatility is quite higher than large, small, or mid-cap funds. The fund manager regularly modifies the asset allocation in order to take advantage of the market.
It is important to note that multi-cap fund charges an expense ratio for managing money on your behalf. As per the SEBI rule, the upper limit of this ratio should not exceed 1.05%. Since multi-cap funds are actively managed to earn gains from market opportunities, it might have a higher turnover ratio and the associated transaction costs. Multi-cap funds may have a higher expense ratio as compared to pure small caps or large caps. However, the amount of profit made by multi-cap funds is good enough to compensate for the higher operating costs.
Multi-cap funds are suitable for those who are investing for medium and long term. The Equity Linked Saving Scheme is a diversified fund which comes with a lock-in period of three years. Generally, the fund experiences fluctuations during the short run, which can be averaged out over the long term. Individuals who choose multi-cap funds need to be prepared to wait at least for the lock-in period, so that the fund realises its full potential.
Multi-cap funds can act as an ideal wealth creator as compared to plain large-cap funds. Because of its dynamic investment strategy, multi-cap funds may accumulate higher wealth for achieving long-term financial goals such as children’s higher education and marriage, retirement planning, etc. Because of their high risk-return equation, these funds are capable of generating enough wealth which can help you fulfill your future financial goals.
There are multiple factors to evaluate best multi-cap mutual funds, they are as follows:
Annual returns and overall fund performance are crucial factors while selecting the funds. Investors may look for return history of the fund for at least 5 to 10 years. It is advisable to choose funds which have consistently beaten their benchmark indices. Additionally, they should have performed reasonably well as compared to their peer set over the longer time frames.
In the case of multi-caps, along with the fund performance, fund history and fund manager play an important role to earn the expected returns. An active fund manager from a trusted mutual fund house is what you need before you invest in a particular fund. It is essential to look into the past performance of the fund and the reputation of the asset management company. The company should have a clear business history and should be at least five to seven years old. It ensures that the company has seen all the market cycles and is a relatively experienced one. Moreover, examine the track record of the fund manager with regards to his/her success rate and delivering the expected returns.
Expense ratio is the annual expense incurred by the asset management company expressed in percentage of their average net asset value. The expense is charged out of the overall returns earned by the fund. The mutual fund charges investors an expense ratio for managing their money on their behalf. On the contrary, direct mutual funds have a lower expense ratio as compared to regular mutual funds. Investors can save a lot on such distribution commissions. Hence, it is essential to choose a fund which has a lower expense ratio.
The risk-return ratio is an important factor to consider when it comes to multi-cap funds. In order to evaluate the risk-return ratio, the sharp ratio is an important factor associated with multi-cap fund performance. The sharp ratio is an indicator of the risk-adjusted return. It represents the excess returns given by the fund over returns given by the risk-free instrument. Higher the sharp ratio, the better is the risk-adjusted return for a particular fund.
Multi-cap funds maintain a diversified portfolio which consists of stocks of different market capitalisation and sectors. Multi-cap funds are an excellent way to take the exposure of broader equity segment with the help of regular nominal systematic investment plan (SIP) amount of as low as Rs. 500 per month to begin with.
Mutual fund investors who don't want to get into the trouble of stock selection or deciding which market capitalisation would suit them may go for multi-cap funds as a starter. Investors may switch to pure cap funds once they have got handful experience of the market. Multi-cap funds are also suitable for beginners and investors who intend to hedge their risks.
Generally, the best multi-cap funds balance the risk and volatility well when it comes to mixing the mid-caps and small-caps in a single portfolio. At the same time, investing in multi-caps becomes complex. In case you don't have enough financial knowledge and are finding it challenging to understand which fund you should invest in, considering an expert opinion is always a wise option.
Kotak Standard Multi-cap Fund is one of the best multi-cap funds which has a proven record of giving better returns than its benchmarks during short-term and long-term periods. The scheme has adopted an aggressive approach in asset allocation across different sectors as it has invested most of its assets in cyclical sectors. The scheme is suitable for those who are seeking long-term capital appreciation by investing in a concentrated equity portfolio.
Mirae Mutual Fund was established in the year 1997 as a result of the Asian currency crisis. Today, the company possesses the global potential to provide lucrative options to the investors spread across the world. The company aims to offer the best financial strategies which are insightful and in accordance with the market dynamics. The fund has given superior performance through its diversified product offerings. The company has successfully outperformed over the years and with the basic principle of moderate-high risk and is suitable for investors seeking long term capital appreciation and a mix of large and mid-cap fund investing.
The scheme is in the top 10 best multi-cap mutual fund category and has consistently beaten its benchmark since its formation in the year 2014. The fund has performed well in both 1 and 3 year horizon. With the fund beta at 0.88, Motilal Oswal, Multi-cap 35 fund has performed better than the market in its worst period, which makes it an ideal option for investors. The fund has delivered an annualised return of 26.33% since inception.
It is one of the oldest multi-cap mutual fund players. The company introduced this scheme in the year 2004. The scheme has outperformed its benchmarks with a minimum margin of 4% during the last five years. The fund follows a relatively conservative approach when it comes to asset allocation across capitalisation, and the scheme has invested a majority of its assets in strong large caps. The fund follows a focused strategy and has invested 80% of its assets in large caps. The fund is moderately high-risk proportion and suitable for investors who are looking for wealth creation over a long period.
ICICI Value Discovery Fund is a multi-cap fund that invests in companies available at fair or below intrinsic value. The scheme has beaten in the benchmark in 5 and 10-year horizon, however, it has underperformed in 1 and 3 -year horizon. Being an equity fund, the scheme has a moderately high-risk proposition, and investors need to stay invested long term for benefits. The fund follows the valuation-conscious approach for stock selection. Because of its concentration on valuation part, the fund bears a slight risk of under-performing in growth-oriented and momentum driven market.
It is an open-ended fund which follows a value investment strategy. The fund invests in equity and equity-related securities with a focus on undervalued securities. The scheme may also invest in foreign securities and international markets, and it seeks to generate long-term capital appreciation. The fund was launched in January 2010 by L&T Financial Services. The fund is moderately high-risk and suitable for investors who wish to invest in undervalued securities.
Axis Focused 25 Fund is comparatively a younger multi-cap fund which has made its debut recently in June 2012. However, the scheme has managed to succeed in acquiring a position in the list of top 10 best multi-cap funds with its impressive performance. The fund has outperformed its benchmark for three years as well as five years period. As the name suggests, the fund follows a focused approach and invests only in 25 equity stocks. The fund is relatively aggressive focused and is highly bullish on cyclical sectors, especially in the financial services. It is an ideal investment option for investors who are looking for capital appreciation over the long term.
As the name suggests, Reliance Focused Equity Fund is a focused multi-cap fund that invests in almost 30 stocks. The scheme has given an impressive long-term performance for three years and five years periods. The scheme has given better returns than its benchmarks. Reliance Focused Equity Fund is a relatively aggressive multi-cap fund which has given a higher weight to cyclical sectors rather than defensive sectors in its portfolio. It is a suitable option for investors who have moderately a high-risk appetite and are seeking a fund which invests in top companies with a mix of growth and value.
It is an open-ended equity growth scheme with an objective of long-term growth capital through a portfolio with an allocation of 90% equity and 10% debt and money market security. The fund is suitable for investors who are seeking long-term capital growth and investment opportunities in equity and equity-related securities.
Franklin India is an established fund which was launched almost 11 years ago in July 2007. The scheme has outperformed its benchmark for both short-term as well as long-term periods. It is relatively an aggressive multi-cap fund scheme which has invested more than half of its assets in consumption-driven market sectors. It is a suitable scheme to achieve capital appreciation.
Funds in other categories such as small-cap, mid-cap, and large-cap, have restrictions and are constrained to stick to the companies that are defined in the portfolio. For instance, a large-cap fund will not be able to invest in mid-cap and small-cap stocks, even if the valuation might seem lucrative. Similarly, a mid-cap fund is forced to remain invested in small and mid-cap stocks, even when the market is not performing as expected. In such a case, a multi-cap fund proves to be a better choice for the investors.
What are the multi-cap funds?
Multi-cap funds are diversified mutual funds which can invest in stocks across market capitalisation. These schemes are generally recommended to equity investors with moderate risk appetite.
How is SBI Magnum multi-cap fund?
SBI Magnum multi-cap mutual fund is one of the best performing multi-cap mutual funds that operates as an open-ended growth scheme, designed to provide investors an opportunity to pursue long-term growth of their investment. The scheme follows the bottom-up approach in stock selection and chooses companies across sectors.
Is Axis multi-cap fund good?
Axis multi-cap scheme has managed to succeed in acquiring a position in the list of top 10 best multi-cap funds with its impressive performance. The fund has outperformed its benchmark for three years as well as five years period.
What is the best multi-cap mutual fund?
The best multi-cap mutual fund invests in equity shares of companies with different market capitalisation. Instead of investing in a particular capitalisation, best multi-cap funds incorporate large-cap, mid-cap, and small-cap equity shares in the portfolio in specific proportion.