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Best Multi-cap Funds to Invest

Equity mutual funds essentially comprise stocks of varied market-cap sizes. Market-Cap is short for ‘market-capitalization’, which is also considered as a company’s asset size. This is calculated by multiplying a company’s current total outstanding stocks with the current market value of 1 stock. There are three market-cap sizes, large-cap, mid-cap, and small-cap.

According to SEBI guidelines large-cap companies should be ranked among the top 100 stocks in Indian stock exchanges, mid-cap companies should have a ranking between 101 & 250, and small-cap companies follow from the 251st ranking. Large-cap companies are gigantic corporate houses which have had a strong market presence for decades. Small-cap companies are essentially small to medium enterprises which are constantly expanding and have a strong potential for growth. Small-cap companies are either starting up or in the development stage; they aggressively look for innovative ideas to expand or diversify. Some small-cap companies also cater to niche markets.

The risk reward relationship also differs in relation to the market-cap size. Large-cap companies ensure steady returns and minimized risk to their investors, whereas mid and small-cap companies are riskier but give higher returns. Conservative or new investors prefer investing in large-cap funds because of their stability. However, mid and small-cap funds are sought after by aggressive or experienced investors.

There are some investors who prefer balanced portfolios over biased ones. Biased portfolios tend to tilt toward a single type of market-cap, which means they either have more (about 80%) large-cap stocks or more mid or small-cap stocks. Balanced funds have stocks from all three market-cap types.

Balanced funds or diversified funds are also called multi-cap funds. These fund portfolios contain select stocks—across all market-caps—allocated in their corpus. They are flexible and you, as an investor, can not only get an idea of how stocks perform but also, get the highest returns.

The best multi-cap funds are curated from the best large, mid and small-cap stocks. They’re flexible and perform differently in each market situations. In a market downturn, the NAV of mid and small-cap stocks tends to slip, but the stable NAV of large-cap stocks keeps the overall portfolio balanced. In times of a market upturn, your large-cap stocks will continue to give you returns, whereas the mid and small-cap stocks will give the highest returns. Some of the best have out-performed the benchmark, giving investors annualized returns in the range of 12% to 18% in a five-year average.

Multi-cap Mutual Funds

Multi-cap mutual funds are curated to ease your dilemma of, whether to invest in large, mid or small-cap stocks. The best multi-cap mutual funds are those that stand out based on performance. Market movements are not constant and often are cyclical.

In a market downturn, mid and small-cap stocks tend to be highly volatile because of their hypersensitivity to even the smallest shift in market patterns. When markets are stable or in an upward trend, these same stocks will recover losses and will even exceed your expectations of returns on investment.

These funds are suitable for you whether you’re a conservative, moderate or an aggressive investor. Moreover, the holding period for your investment in these portfolios need not be lengthy. Market experts and fund houses recommend an average holding period of 3-5 years for these portfolios to show significant returns. This is still shorter than the average 5-7-year period for tilted or bias (mostly large or mostly mid-cap) portfolios.

Top Multi-cap Funds to Buy

2018 has been a turbulent and unpredictable year for most investors. However, new guidelines by SEBI has created a more positive outlook for multi-cap funds in 2019. Previously, fund managers switched out stocks in multi-cap portfolios based on market movements or sentiments, which meant that when markets were down, the portfolios became more tilted toward large-cap stocks. With revised mandates in place, investors will have more flexibility in picking their stocks.

If you’re a moderate or aggressive investor who likes to see higher returns, then investing in the top multi-cap mutual funds is a great way to begin. Not only can you get the highest returns, but you can also get quality stocks with the greatest potential for growth.

Unlike other equity-fund types, multi-cap funds can be held for 3-5 years, which is relatively shorter than other equity-oriented funds. Though these funds give great returns in shorter periods as well, market experts recommend holding any equity-fund for at least five years to get maximum benefits. Here are our top recommendations:

Factors to Consider Before Investing in Multi-cap Funds

These are some of the things you should consider before investing in multi-cap funds:

  • Investment Objectives: Multi-cap funds are curated to accumulate wealth through the best combination of large, mid and small-cap stocks. The best multi-cap funds offer the highest growth and value while mitigating risks associated with market movements. Whether you choose to invest for creating value or growth, you will have the pick of quality stocks in each portfolio.

  • Associated Risks: You need to have a moderate appetite for risk to invest in these funds. These funds are composed of stocks from all three market-cap sizes, which means the NAV of some of these stocks will fluctuate considerably when market cycles shift. You need to evaluate your capacity for bearing risk before investing in these funds.

  • Investment Period: Every mutual-fund investment has a minimum and recommended holding period. These funds require relatively shorter investment periods in comparison to others, which is 3-5 years. Though market experts recommend an average holding period of seven years for any significant growth, these funds have been known to give 12%-18% annualised returns in about five years.

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