A multi-cap fund is an equity mutual fund that invests in a diversified portfolio of shares of companies with varied market capitalizations-large-cap, mid-cap, and small-cap stocks. Thus, the investor can enjoy the resultant benefits of growth possibilities for all levels of companies in the market. The rationale is to have a well-diversified portfolio that may give stability as well as higher growth opportunities by spreading investments across different market segments.
Multicap Funds Core Features
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Investment Across All Market Capitalizations:
Large Cap Stocks :
The share of a huge financially sound very safe companies with market capitalization; often above ₹20,000 crore in India. The companies involved here tend to be extremely stable and are relatively less volatile than the small-cap companies.
Mid-cap stocks Companies with a moderate market capitalization of Rs 5,000 crore to Rs 20,000 crore. Good balance between growth and risks. Though they are not stable in comparison to large-cap companies; however, they hold immense growth potential.
Small-Cap Stocks: These are companies having relatively small market capitalizations, mostly under ₹5,000 crores. These are volatile and risky but hold high growth opportunities. Generally, small-cap stocks are more sensitive to the economic conditions but can provide better returns in the long run.
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Diversification:
Multicap funds bring diversification across large, mid, and small-cap stocks, thus spreading the risk across different sectors. This decreases overall risk because such market caps mostly have non-correlated performances; when one segment underperforms, the chances are another might be up.
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Dynamic Asset Allocation:
The multi-cap fund is permitted to invest in large, mid, and small-cap stocks, depending on the fund manager’s perception of the market. The fund manager can decide how much of each segment he would like to invest and, thereby, balance the risk and return according to market conditions.
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Active Management
Multicap funds are operated actively. In this context, the choices of stocks and assets are decided by the fund manager. The manager should be able to change the portfolio as per the market movements, sector performers, and the fundamentals of specific stocks.
Objective:
The main objective of a multi-cap fund is to generate long-term capital appreciation by spreading investments across market capitalizations. The fund aims for large-cap stability and growth from mid-cap and small-cap stocks.
How to Choose a Multicap Fund:
Selection of a suitable multicap fund for investment involves a few considerations as follows:
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Performance History
The history of returns over 3-5 years should be analyzed so that the performance of the fund is well understood under different market conditions. Past performance, though no guarantor of future results, might provide an idea about the management of the fluctuations by the fund manager in the market.
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Fund Manager:
The skill and expertise of the fund manager also play a crucial role in the case of multicaps. An efficient manager ensures effective asset allocation between other market caps and sectors through an appropriate mix to make returns without increasing the inherent risk.
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Expense Ratio
It eats into the profits overall, so a proper comparison should be done, in respect of the overall expense ratio of the respective multicap fund with regard to similar funds to figure out if it is realistic or not.
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Investment Objective
Ensure that the investment objective of the fund happens to be aligned with your personal goals, such as long-term wealth creation, retirement, or saving for a special kind of financial goal.
Example of well-known Multicap Funds in India:
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SBI Multicap Fund
This fund seeks capital appreciation with a balance in the risk-reward. It invests across large-cap, mid-cap, and small-cap equities.
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HDFC Multicap Fund
Multi-cap funds offer diversified exposures in the market capitalization and sectors.
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Mirae Asset India Equity Fund
It focuses on the best of multi-cap stocks blended well with high-quality growth across market caps.
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Axis Multicap Fund
Diverse portfolio across market capitalizations, actively managed, diversified.
CONCLUSION
This makes an investment in the multicap fund, an excellent avenue for such investors who are looking at diversification, long-term capital appreciation and gaining exposure to various segments of the markets.
In this method, large-cap stocks, middle-cap stocks, and the small-cap stocks are simultaneously invested with a view that they should collectively provide stability and growth opportunity together.
However, because of the more risk exposure to small-cap stocks, these funds tend to be more volatile; thus, they are ideal only for very long-term investment horizons or for people who have a high threshold for market fluctuations.
Do not forget to always examine the fund’s performance, management, and expense ratio before you invest and make sure it will help in your attainment of financial goals and your capacity for risk-taking.