MULTICAP FUNDS

What are multi cap funds?

These are diversified mutual funds which can invest in stocks across market capitalization. As per regulatory mandate, these funds need to have a minimum investment in equity and equity related instruments of 65%. Their portfolio comprises of large cap, mid cap and small caps.

Multi-cap funds which have a mix of large-, mid- and small cap stocks are being recommended by investment advisors due to the flexibility they offer in terms of investing style.  Large-cap funds tend to provide stable and modest returns. They are in a better position to withstand a market downturn. However, they may underperform when there is a bull run. Mid-cap mutual funds are riskier. But, they can provide potentially high returns during a bull market. Small-cap funds are at the other end of the investment spectrum. They have the potential for generating very high returns. But, they are also very vulnerable to losses when there is a downturn.

Which category of investors should consider multi cap Funds?

Investors who don’t want to get into the nuances of picking individual stocks or deciding which market capitalization fund would suit them may go for multi-cap funds to start with. Once they are sure of a category, they could even switch to those funds. Investors who want to balance risk and volatility in a single portfolio could also opt for multi-cap funds. This category of fund suits those with a moderate risk apetetite.

What time horizon should investors look at?

While investing in equity as an asset class, investors should look to invest for a time frame of at least 5 years. This long time frame cushions against volatility and helps benefit from the power of compounding.