Understanding of Multicap funds
Under the vast mutual fund gamut, there is a wide range of schemes to choose from. But if you aren’t sure about where to invest your hard earned money, do not rush. But instead, take out time to understand each of the schemes in detail to determine which mutual fund product is suitable for your financial goals. Individuals who understand financial planning know that before investing in any type of scheme, they first need to have a defined set of financial goals and then prioritize these goals based on the urgency in their life.
One way to target long term financial goals can be by investing in market linked schemes like multi cap funds. Let us find out more about these funds and if they are ideal for adding to your portfolio.
What are multi cap funds?
A multi cap fund is an open ended mutual fund scheme that invests the majority of its investible corpus in equity and equity related instruments of publicly listed companies. These are market linked schemes that must invest a minimum of 25 percent each in mid cap, small cap, and large cap company stocks. This asset allocation is as per SEBI mandate whereas the remaining of the portfolio can have exposure to fixed income securities and other money market instruments.
Features of a multi cap fund
Performance across market cycles
If you consider other equity funds like large cap funds or small cap funds, their exposure is limited to large cap and small cap markets respectively. Because as per SEBI norms, these funds must invest predominantly invest in those specific markets. But in the case of multi cap funds, since these funds spread their asset across market caps, in case either of the market caps turns lucrative these funds can have more exposure to those stocks and benefit. Similarly, if either of the markets turns volatile multi cap funds can handle this situation in a better way as opposed to other equity funds that are confined to one particular market cap.
While other equity schemes too offer the diversification, they are limited to stocks of companies belonging to a certain market capitalization. In such a scenario, multi cap funds offer true diversification as they can invest in stocks of companies belonging to various sectors and industries across market capitalizations.
No Entry Load
Since SEBI has waived off entry loads from all mutual fund schemes, multi cap funds do not have any entry load. Investors need not pay any extra charges for starting their investment journey in multi cap funds.
Who should invest in multi cap funds?
Investors who have a long term investment horizon spanning over 5 years or more can consider investing in multi cap funds. That’s because since these are market linked schemes it is essential for investors to remain invested in them for the long run so that the scheme is able to perform to its fullest potential and deliver decent returns.
Also, investors who wish to invest in equity mutual funds and carry a very high risk appetite but do not know which type of equity fund is suitable for them can consider investing in multi cap funds too.
Multi cap funds do not guarantee returns and carry very high investment risks. Please consult a financial advisor before investing.