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Benefits of Investing in Multi cap Funds

ICICI Securities 18 Apr 2022 0 COMMENT

Introduction

Mutual funds have become popular investment tools for those who want to earn superior returns and diversify their portfolio. Indian investors are moving away from traditional investment avenues like fixed deposits and gold to explore mutual funds. 

When it comes to making mutual fund investment decisions, there are various kinds available in the market that you can choose from depending on your risk profile, investment horizon and goals. Investors often find themselves stumped when deciding between large-cap, mid-cap, small-cap and sectoral funds. 

Each of these mutual funds has its own benefits. While large-cap funds provide stability to your portfolio, mid-cap funds benefit you from their growth opportunities. Small-cap funds offer the possibility of higher returns but come with higher risk. Sectoral funds can help you take advantage of a boom in a particular sector. 

One class of mutual funds that stand apart from all of these are multi-cap funds. These equity funds invest in companies of different market caps and sectors, thereby providing you with a slice of all the above categories. New investors often choose multi-cap funds to invest in because of the diversification benefits. Apart from that, they also provide better risk-adjusted returns and professional management. 

If you are considering investing in multi-cap funds, then here are the advantages to look at. 

Advantages of Multi-Cap Funds 

1. Diversification 

The obvious advantage of multi-cap mutual funds is the diversification it provides. These funds invest in companies with varying market caps and sectors, thereby providing a natural diversification to your portfolio. You don’t have to choose large-cap, mid-cap and small-cap companies yourself. The fund has exposure to them all. 

2. Better Risk-Adjusted Returns 

With the benefit of diversification comes the benefit of better risk management. For instance, if small-cap companies are not performing well during a period, fund managers can automatically shift focus to other companies such as large-cap companies to manage risk. Therefore, the risk-adjusted returns in multi-cap funds are better than in single-cap funds. 

3. Professional Management 

Multi-cap mutual funds are highly dependent on their fund managers for their performance. This is because fund managers have to make decisions regarding allocation. An experienced fund manager will be able to take advantage of market conditions and optimise investments to provide the best returns possible.  

4. Highly Liquid 

Like all other mutual funds, multi-cap funds are highly liquid investments. These are open-ended equity schemes that can be sold at any time to recover your money. They have no lock-in period. If you need funds, you can sell them at any time. 

5. Great for Wealth Creation 

Historically, multi-cap funds have generated inflation-beating returns in the long run. For investors seeking to multiply their wealth, investing in multi-cap funds can be a great way to do that. 

Additional Read: Difference between large cap, mid cap and multi cap mutual funds

What to Consider Before Investing in Multi-Cap Funds

  • Always consider your investment horizon before deciding to invest in a multi-cap fund. These are best suited for long-term investments. 
  • Check the fund manager’s history and vision to ensure it aligns with your investment objectives. 
  • Be sure you have the risk appetite to stomach ups and downs in the market since these funds have exposure to equities. 

Conclusion 

Multi-cap mutual funds are equity funds that have exposure to different categories of company stocks. They have in-built diversification and provide risk-adjusted returns. If you are a first-time investor in mutual funds or want to diversify your portfolio, then multi-cap funds can be an excellent option to consider. 

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