Before you blindly follow your fund manager, it is important to know something about how your fund actually functions when you park your funds for investment purposes. We all know about various types of fund caps available like small cap, large cap and mid cap funds, which set aside your investments accordingly.
Large-cap fund will invest only in index-based heavyweights and other blue chips. You won’t find a small-cap company in its portfolio. And similarly, investing in a small fund means that your investments will be parked in small companies, with no big companies chipped in.
Instead of investing in large cap companies, living with a fear of losing out on your savings and entering into a loan of repaying your borrowed money as in a home loan or repaying to private financiers etc, or investing in small companies, where the wait for earning bigger returns is forever, investing in multi cap funds is a better bet.
The reason is because, multi cap funds look to invest in stocks across the markets, pertaining to various sizes; small or large. Investors can still benefit during bearish market conditions by not losing all their savings. Since companies belonging to different market segments demonstrate different levels of volatility and returns, it is best for investors to hold stocks of varying market capitalizations.
It has been analyzed that, multi cap funds have done far better than other Fund Caps. Investors looking for long term benefits of investing in the stock markets can go for this fund type.
Being more liquid than equity assets, these funds are easily redeemable any time. However, this option should be used only if it is required. Generally due to bearish conditions, only a part of your multi cap may not perform well whereas the other not-much-affected companies may do well or remain stable. In such situations although, you might not make better returns but you do not lose out all your savings also.