Mutual Funds

Multicap Funds: The best option to invest through Mutual Funds

Jamshedpur, Dec 5: Individuals are increasingly investing in Multicap funds of several asset management companies because of the volatility in the market. Data from Association of Mutual Funds of India (Amfi) show net inflows in multicap funds touched Rs 3,569 crore in the month of September, the highest in the equity funds category.

Multicap funds invest in diversified stocks of Large-Cap, Mid-Cap and Small-Cap across sectors. These funds capitalise on the opportunities across market caps and generate optimal returns for investors. Last year, the markets regulator changed the guidelines of investments in which Multicap funds have to invest minimum 25% each in Large-Cap, Mid-Cap and Small-Cap Stocks. This was done to ensure Multi-Cap schemes hold a diversified portfolio across Large-Cap, Mid-Cap, and Small-Cap companies and make the funds more diversified. Fund houses had to align their portfolios to these new limits by January 31, 2021. Before the new rules kicked in, fund managers of Multi-Cap funds invested a higher proportion in Large-Cap funds. The Securities and Exchange Board of India (Sebi) had also introduced a new category called Flexi-Cap which has the flexibility in allocation across market caps and there is no restricted limit.

This helped fund managers to avoid reshuffling of the Multi-Cap portfolio and many existing Multi-Cap funds switched to Flexi-Cap category. At present, most Flexi-Cap funds have a higher allocation to Large-Cap stocks. Investors are looking at Multi-Cap funds because they provide the stability and low volatility of Large-Cap stocks and higher returns of Mid Caps and Small Caps, albeit high volatility. The funds are actively managed and whenever fund managers spot an investment opportunity in Mid-Cap and Small Cap segments, the allocation towards them is increased making the funds a high-risk high-return investment proposition. Multi-Cap funds will face higher volatility in the short-term, investors must stay invested for a period of five years and above to gain significant returns.

In Multi-Cap funds, fund managers maintain the allocation mandated by Sebi and the rest 25% is dynamically allocated as per the fund house’s proprietary investment as per my guidance as a MFD fundamentally investor should invest in Multicap Funds through ongoing scheme and NFOs in the market.

*Mutual fund investments are subjected to market risks read all scheme related documents carefully

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