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Can you afford to ignore multi-cap funds in your portfolio?

Multi cap funds come with a number of advantages and the most important one is the diversification it offers by investing across the categories of segments.

When it comes to cold desserts, there’s a plain vanilla ice cream and then the "ice cream sundae". Most Mutual fund houses too have such special kind of funds, which can be the Sundaes of the MF world- the multi cap funds.

Simply put these are diversified mutual funds which invest in stocks across market capitalisation. Multi caps invest in stocks across companies, right from large cap, mid cap to small cap. Multi cap funds come with a number of advantages and the most important one is the diversification it offers by investing across the categories of segments. This also offers a certain kind of flexibility to adapt the fund portfolio as per the market. 

After all, different segments in the market usually perform at different times. Fund managers get to switch holdings in the fund between these three categories as per their choice, based on the market conditions. As per SEBI, such schemes need to have 65 percent investments in equity and equity related instruments. Multi caps usually have 50-90 percent invested in large cap stocks. 40-10 percent in midcap stocks and up to 10 percent in small cap stocks. This way you end up getting the best ideas across market capitalisation in your kitty.  

Pretty much like the Sundae, they can offer an exposure to all key sectors that drive the Indian economy. Multi caps actually act like risk regulators in a way. The risk is often mitigated during volatile situations thanks to their exposure to companies across market capitalisations and sectors.

How to choose a multi cap fund

Choose a fund based on both Qualitative as well as Quantitative parameters. Qualitative factors include the likes of reputation of the fund house and the fund manager’s style of investing. Quantitative includes the fund performance as compared to the benchmark over the long term.

Multi-cap funds offer a good way to diversify across market capitalisations and are suitable for most investors who have long term goals. For the new investor, unfamiliar with the asset-allocation strategy of investing, multi cap funds become a good starting point. 

Who should invest

Multi-cap funds offer a good way to diversify across market capitalisations and are suitable for most investors who have long term goals. For the new investor, unfamiliar with the asset-allocation strategy of investing, multi cap funds become a good starting point. 

After all, these make investing very simple, as one need not worry about identifying large, midm or small caps funds and deciding on their allocation. The multi cap fund manager does the stock picking and makes a multi cap portfolio on your behalf. Many financial advisors believe that multi cap category funds play a key role in a portfolio designed for long-term wealth creation.

How long should you be invested in multi cap mutual fund?

Historically Multi Cap Mutual funds have delivered good returns over a longer period of about 7-10 years. They are suitable investment options for accumulating larger corpus over the long term, like a retirement kitty.

Different styles

Quite a number of multi cap funds  with different styles of investing are available. Mostly they are large-cap focused multi-caps. There are some funds that have a significant mid- and small-cap focus in their portfolio.

What you should do

Multi cap segment should be an important part of your portfolio, as it gives you an opportunity to make the most of the equity offerings available across the market. Look to understand the style and strategy adopted by the funds, know the risk and return features of the fund to make them a part of your portfolio.

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