funds are one of the most sought-after investment avenues for creating long-term wealth. A lot of young investors prefer investing in mutual funds as opposed to FDs and PPFs where most of their parents or grandparents preferred investing. They know that mutual funds may not guard mutual ntee returns but they have outperformed all other conventional schemes in the long run. For those who do not know, mutual funds are a pool of professionally managed funds where the fund managers invest the sum accumulated through investors sharing a common investment objective across various asset classes and money market instruments depending on the nature and risk profile of the scheme.
Equity mutual funds have given maximum returns as opposed to any other mutual fund category. But there is always confusion on whether one should invest in large-cap, mid-cap, or small-cap funds. What investors fail to realize is that there are other categories within the equity fund gamut like multi-cap funds which they can consider for spreading their investments across the market cap.
What is a multi-cap fund?
A multi-cap fund is an open-ended equity mutual fund scheme that invests a majority of its investible corpus in large-cap, mid-cap, and small-cap stocks. As per market regulator SEBI, all multi-cap funds must invest a minimum of 25 percent each in small, mid, and large-cap markets. They are different than Flexi cap funds who must invest a minimum of 65 percent across the market cap with no restrictions of minimum investment in any of the market cap.
Features of multi cap funds
If you consider blue-chip funds or any other category of equity schemes like mid-cap funds or small-cap funds, they have restrictions and must expose the majority of their asset to stocks of companies belonging to a specific market capitalization. However, that’s not the case with multi-cap funds as the fund manager has the leeway to diversify the fund’s portfolio across the market cap. The fund manager can carefully study the current market scenario and build a portfolio by spreading the fund’s assets across various stocks of companies having different market capitalization.
The kind of diversification mid cap funds offer, no other mutual fund scheme can offer. Since there is no obligation to predominantly invest in any specific market cap, multi-cap funds diversify their investment portfolio across markets, sectors, and industries. A well-diversified portfolio is known to mitigate the overall investment risk and that is exactly what multi caps offer to investors. By investing in multi-cap funds, investors not only can get exposure to stocks of credible companies driving the Indian economy but also minimize their overall investment risk.
Who should consider investing in multi cap funds?
If you are a first-time investor who does not wish to expose your entire finances to one single market cap, you can consider investing in a multi-cap fund. Investors who wish to diversify their investment portfolio with a scheme that invests across market cap can consider adding multi-cap funds. Some investors who are not sure whether they should invest in the large-cap, mid-cap, or small-cap fund can invest in multi-cap funds and get the best out of all three asset classes.
How to invest in a multi-cap fund?
The best way to protect your total investment sum is by investing a portion of it regularly in multi-cap funds through a Systematic Investment Plan. Investors can even use the SIP calculator to draw an estimate on the total returns that their investments might fetch of a fixed duration.
