Multi-cap funds help you design and maintain a limited mutual fund portfolio if you do not want to expose yourself to too many funds.
Many investors invest in Mutual Funds for the purpose of convenience. While investing in direct equities can be a relatively intricate affair – one that may require periodic intervention on the part of the investor, an SIP in a Mutual Fund is a far easier way to build wealth over the long term.
Of course, there are many categories of funds on offer in the Equity Mutual Fund scene. While all of them have their merits one way or the other, multi-cap funds remain the most universal choice for the discerning investor.
While individual funds in the large, mid and small-cap universe exist, markets are often cyclical between their components. Many a time, your portfolio may need re-balancing depending on the market mood at the time: small-caps are known as the most volatile segment of the three during a downturn, while large-caps prove to be more resilient in such a scenario.
In such instances, a prudent multi-cap fund manager will automatically ensure that the portfolio is best aligned to the prevailing sentiment and such a multi-cap fund by extension, will enable you to be safely diversified without any juggling needed within your portfolio.
Equity is a risky component by itself, and mid and small-caps are two of the riskiest classes contained therein. To offset such a risk, investors are typically ensured to invest periodically across a lengthy duration spanning over 10 years.
For more conservative investors, multi-cap funds offer some of the benefits of small and mid-cap funds, often without the unstated mandate of having the investor remain invested across such a long horizon. During raging bull runs such as the one we encountered in 2017, a good multi-cap fund will load up on small and mid-cap stocks and have the investor experience the market highs, and do the opposite in the other scenario. An investor, therefore, may expect high returns without explicitly investing in small or mid-cap companies throughout.
Multi-cap funds also help you design and maintain a limited mutual fund portfolio if you do not want to expose yourself to too many funds. For reasonable diversification, two or three multi-cap funds are good enough to enjoy all the benefits that equity provides.
Of course, do make sure that there is reasonably diversity in the funds without too much overlap. Also, ensure that you opt for an SIP to accumulate wealth and benefit from rupee cost averaging across the very long term.