What are the Advantages of Investing in Multi Cap Mutual Funds?

multi cap mutual funds

Advantages of multi-cap funds and investing in multi-cap funds stem from a base characteristic of the category, which is, that multi-cap funds invest their corpus in large-, mid- and small-cap funds. Their investment is spread across stocks of all kinds of companies with varying market capitalisations hence they are known as ‘multi cap’ funds= funds which have stocks of multiple market capitalisations.

If you can already gauge, such a regulation will give rise to many advantages which is what we will be discussing here in this space. Here are the reasons why multi cap funds are good

Variety: Variety, which has been already mentioned but is worth the repeat. You get to take the best out of most in a sparse and diversified manner. Multi cap funds invest in multiple market cap stocks. Hence when it comes to who should invest in a multi cap fund, it is for those who want variety in the market caps exposure of their fund. Multi cap funds also invest a small % in debt securities as well. For example, Axis Multi Cap Fund 83.9% of the corpus is invested in equities, 9.7% in debt and rest as cash. Multi cap funds can be just invested in only equities as well. For example, Kotak Standard Multi Cap Fund Growth has invested 94.6% of its assets in equities and rest in cash.

Ease of investment: This comes in two forms with respect to multi cap funds. One, the fact that it is a mutual fund this fares well with many investors who do not want to go with the risk of picking individual stocks and invest in a mutual fund that does that job for them. Even after deciding that you want to invest in equity mutual funds, many investors who may not be that well read or well versed with the stock market dynamics might find themselves wondering if they should invest in large cap funds, small cap funds or mid cap funds. Multi cap funds solve that problem and makes it easy for new investors to park their money. This is one of the benefits of investing in multi cap funds that an investor gets.

Professional management: There is a fund manager who has been employed to manage your funds. All the funds collected by the multi cap funds are again invested in stocks of multiple market caps to the best of the fund manager’s judgement, expertise and financial knowledge.  With ease of investments comes the benefit of a professional hand. You will not have to worry yourselves with the decision making aspect, which stocks from large, mid and small cap categories should your fund choose. All you have to do is pick  the right fund with a fund manager that has a good track record. The rest of the job will be done for you. This is one of the key benefits of investing in multi cap funds.

Flexibility to the fund manager: There is a lot of flexibility given to the fund manager as well on a regulatory note. Securities Exchange Board of India (Sebi) which is the markets regulator in India has stated strict rules for all mutual funds. For multi cap funds, 65% of the corpus can be invested in equities. When it comes to other market capitalisation categories, large cap funds have to invest 80% of their funds into large cap equities, mid cap funds have to invest 65% into mid cap equities and small cap funds also necessarily have to invest 65% into small cap stocks. Fund managers are bound by these rules. Fund managers of multi cap funds are not by these rules. They have the flexibility and freedom to invest 65% of the corpus across categories.

Freedom: The aforementioned flexibility given to the fund manager gives him or her the freedom to change the composition of the fund according to the market conditions. If small cap and mid cap companies are taking the beating of stock market conditions, the fund manager can change the composition and increase exposure to large cap companies. Freedom to fund managers is one of the advantages of investing in multi cap funds for you as well because these perks to the fund managers often translate into the performance of the funds in general.

Stability:If investments are spread across  different kinds of market cap stocks, fund managers can use his/her expertise to maintain stability in the fund during volatile markets. This is also why multi cap funds are good, it stabilises and balances out the risk in other categories.

Returns on Multi Cap Funds

If you look at the table, you will see that returns in the multi cap category are almost in line with the other categories as well.

Fund Category Returns (As on May 26)

Name1 DayYTD1W1M3M1Y3Y5Y10Y
Equity: Large Cap-0.03-23.221.83-1.02-20.84-20.64-1.382.447.40
Equity: Large & MidCap0.44-22.262.08-0.55-22.99-19.39-3.972.488.54
Equity: Multi Cap0.11-22.241.87-0.80-22.01-19.30-2.782.408.38
Equity: Mid Cap0.98-19.212.901.05-22.91-17.70-4.822.3310.9
Equity: Small Cap0.59-22.722.26-1.57-26.94-24.69-9.490.558.01

Who should invest in a multicap fund?

Investors who do not want to take the risk of investing standalone categories, want to play a bit risk averse on the whole, if you do not want to get into the work of picking stocks individually and understanding where should your exposure be because this requires decent amount of research from your end on what suits you more, what do different fund categories entail, etc

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