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Flexibility is a great characteristic feature which most investments should ideally have. Multi-cap fund is one perfect combination of different stocks and thus, are flexible.
Multi-cap funds can be defined as mutual funds which are diversified and can be invested in companies across market capitalization. In brief, we can describe multi-cap funds as an agnostic of market capitalization and a means for investment across the breadth of the equity market. Moreover, multi-cap funds are a type of equity mutual fund schemes which are capable of taking up the opportunities across market capitalization for the investment.
In India, investors majorly choose their multi-cap funds based on the criterion like past returns, financial ratios etc. Multi-cap funds are a combination of the stocks which have various sizes of market capitalization. Today, when we think about investment plan; Mutual funds are the best option because they provide returns in comparison to the other conventional methods of investments. Usually, before a person invests in mutual funds, she/he is always in a dilemma of selecting a particular category.
The different types of mutual funds where people can invest are:-
Multi-cap funds are an excellent choice for investors who are new in the market and are looking for flexibility in their investments. Generally, investors who are interested in taking moderate amount of risk in the market opt for multi-cap funds. Since, these funds provide flexibility, fund managers can find out the chances of growth and implement new ideas without any constraint of restrictions about the capital size.
Multi-cap funds have huge returns however; there are cases when the risks involved with the multi-cap funds changes due to the fact that they have a large reserve of stocks to choose from. Generally, the fund managers make the decision of selecting the stocks and it is advisable to select lesser number of stocks with a wider range of diversification.
When you are making an investment plan with the intent of getting returns and making wealth, risk taking is inevitable. Multi-cap funds are preferred by young investors mostly, as they can learn about the trends in the market along with wealth creation. If you have a good multi-cap fund, then there is no effect of stock market fluctuations on your investments. Moreover, you can term them as the risk regulators.
In multi-cap funds, the mutual funds contain stocks of sizes of different market capitalization. Due to this characteristic, the fund manager can pick up stocks as per your needs and objective. Since, the choice of stocks is independent of the market size, it is said that these funds provide freedom to the investors.
Whenever, there are growth opportunities available in the market; multi-cap funds are designed in a way to find out those opportunities and seek higher growth for the investors. A good multi-cap fund gets a boosting performance if there are positive economic changes in the market.
Multi-cap funds have stocks of different market capitalization and stocks giving it a diversified portfolio.
Fund returns or otherwise known as Fund performance is an important criterion for evaluating multi-cap funds. Investors usually compare the returns for a time period of 5-10 years and select the one which has been giving stable performance.
While you are investing, it is very much essential to have a parentage from a reputed fund house. The reputation of the asset management company should be cross-checked and you should have a clear idea about their past performance, business history and the different phases which the fund has experienced. In addition to that, the performance of the Fund manager should also be checked to have an idea about his success rate in past.
Expense ratio can be defined as the annual expenses which the funds incur in the terms of percentage of their average net asset. Usually, the investor should choose a fund which has a lower expense ratio. Expense ratio is mostly charged on the overall returns that the fund makes.
These are the risk-return ratios which are an important factor to be considered. Among the financial ratios, one important metrics is the Sharpe ratio which is an indicator of risk-adjusted return. The more the Sharpe ratio, the better is the risk-adjusted return for a particular fund.
As the multi-cap funds invest in small-cap funds and also mid-cap funds they are somewhat in comparison to the large-cap funds which are investing in big companies only. When investing in multi-cap funds, the fund manager has the most important role to play. He has to take up the initiative of the movement of money from one fund to another during down periods or proper investment for better earning.
Hence, Multi-cap funds stand out amongst the investment options due to its flexibility. They can take the advantage of growth and the value style of investment and are better creators of wealth in the long run. However, the best rule to follow in the investment market is to diversify the investments among the various categories of mutual funds available, Debt and some other traditional means as well.
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