Flexibility is an advantage of multi-cap funds

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There are various kinds of mutual funds in the market classified on different parameters. These classifications assist you to select the fund that suits you the best. There are three market capitalisations namely – small, mid, and large – when it comes to investing in equity mutual funds. And by investing in multi-cap mutual funds, you can get exposure to all these three capitalisations as this fund diversifies your investment across all market capitalisation categories. The idea adopted by this fund is to protect your interest in a volatile marketplace. 

What exactly are multi-cap funds?

Multi-cap funds look to lower market risks as well as ensure growth by simply diversifying the holdings in the portfolio across various segments. This feature of the fund allows it to resort to instant portfolio adjustments to make it in alignment with the emerging market scenario. Thus, multi-cap funds are considerably less risky than capitalisation-weighted funds like mid-cap, large-cap, and small-cap funds. This makes the fund ideal for non-aggressive and risk-averse investors too. 

Besides the above benefit, flexibility is a crucial feature of multi-cap funds. As mentioned above, multi-cap funds can invest across different market capitalisations and can even take benefit of various opportunities throughout the market. In simpler terms, multi-cap fund managers can change the portfolio composition to enhance the returns. 

Let’s assume that the market is bullish and large-cap stocks perform poorly, then the fund manager here can easily change the composition of the asset to add in mid-cap stocks, which may add better value. In another case, during a bearish market, small-cap or mid-cap can perform poorly. Again, in this case, the fund manager has the right to change the investment portfolio to include a stable and better-performing large-cap stock. 

In this manner, multi-cap provides the fund manager with more choices. The fund manager has a considerable edge in all market conditions. The performance of a multi-cap fund, thus, is dependent on the potential and experience of a fund manager. While flexibility in a multi-cap mutual fund is one of the important benefits, there are other benefits too that make this fund a must-have in your investment portfolio.

Crucial benefits of opting for multi-cap funds 

Investment philosophy

Multi-cap funds are equity-linked funds and like any other type of mutual fund, they also invest as per the mandate of the Securities and Exchange Board of India (SEBI). Such mutual funds must have a minimum corpus of 65% in equities. The investment portfolio of this fund type comprises a blend of all crucial market cap stocks. 

Risk

Such funds may be riskier as compared to pure large-cap funds but less risky than complete small-cap and mid-cap funds. In the scenario of a market downturn, a multi-cap fund manager may play it safe as they can easily shift your investment to better-performing stocks. 

Returns

Returns from such funds highly depend on the fund manager. The viewpoint of the manager deeply influences the returns that you generate in the market. Thus, before selecting the fund, ensure to also consider reviewing the fund manager’s profile and experience. Over the past three and five years, such funds have generated an average return of around 9% and 12%, respectively. Such funds have also given a return of as high as around 15% on an investment horizon of over five years. 

Ending note

If you are one of those investors who fear the risk of missing out on market rallies, then investing in multi-cap funds can be your best bet as it can allow you to make the most out of bullish markets. Also, investment in such fund type can allow you to ride out of the bearish markets too. Thus, such funds are a great option if you are looking to participate in a complete market cycle over the mid to long-term horizon.