360 Degree Guide to Multi-Cap Funds

Best multi cap mutual funds to invest in 2020 - The Economic Times

While many have an idea about the value involved in mutual fund investment, sometimes new funds and new schemes may create confusion in the mind of the investors. In case you are still investing in just equity and debt mutual funds now is the time to diversify your investment portfolio with an agile fund that can deliver a better return. The fund is a multi-cap mutual fund.

What is a multi-cap mutual fund?

Multi cap funds are a kind of equity funds that invest throughout all market capitalization, segments, and themes without the SEBI imposed caps upon their exposure. However, such funds must invest at least 65 percent of their overall assets in equity and equity linked investments. Multi cap mutual funds invest in multi cap firms belonging to small cap, mid cap, and large cap companies. In multi cap fund, fund managers can disseminate the wealth throughout 3 kinds of firms namely small, mid, and large caps in place of just being restricted to one group of companies.

Other mutual funds may be restricted to investing in just one kind of company owing to its market capitalization. For instance, a large cap fund can just invest in the companies having the biggest market capitalization. But if any investment opportunity comes up in a mid cap or small cap space, fund managers cannot place money in those firms.

Multicap mutual funds can meet this issue and endow the fund manager with full freedom to invest in any kind of opportunity irrespective of the company size.

Multi cap mutual fund – pros and cons

Now that you are aware of what a multi cap fund brings to your portfolio, it is time to evaluate the advantages and disadvantages of investing in it. Beginning with the advantages, above mentioned is the biggest issues that multi cap funds can solve i.e., itmay provide higher profit on investment. Thus, if wealth creation is your reason to invest in a mutual fund, you can opt for multi cap funds as it holds the potential of delivering higher returns. A fund can work by delivering good returns during bullish markets from mid-caps and small caps while large caps may protect your investment in this market phase.

The drawback or a major risk of multi cap fundis the fund manager requires being thoroughly agile to be able to detect and understand the market trends. It also means that the whole duration you are invested in a multi cap fund can be a volatile period with money changing hands at periodic intervals depending on the fund manager’s evaluation. The investor who can stomach high volatility may benefit from the multi cap fund over the long run than those who may be tempted to bring down losses and exit as soon as possible during falling markets.

Why should you invest in a multi cap mutual fund?

Fund managers of such mutual funds can freely change the exposure to different market segments and capitalizations according to the changing market scenarios. It permits them to easily exploit the market linked opportunities and manage the risk arising from changing valuations and different fundamental and technical parameters. Just by combining the large cap companies’ stability and growth potential of the small cap and mid cap companies, the multi cap funds are positioned better to offer higher returns at reduced risk.  

Investing in multi cap mutual funds can also save you from the danger of changing exposure to distinct equity fund categories owing to the changing market conditions. The fund manager of the multi cap fund can do the same on the investor’s behalf.