The recent introduction of the Franklin India Multi Cap Fund has sparked renewed discussion regarding multicap versus flexicap funds. As with many other multicap mutual funds, it is anticipated that the assets under management (AUM) will be allocated across a predetermined spectrum of large, mid, and small-cap companies. This distribution is usually balanced, approximately around 33% for each category, though it may fluctuate.
Investing in a multicap fund can be advantageous for investors interested in allocating funds across large, mid, and small-cap schemes. The aim is to achieve balance and stability through the integration of diverse market specializations. Multicap fund investors strive to accomplish the following:
Diversification: Spreading assets across organizations of different sizes reduces total risk compared to focusing primarily on one category.
Balanced growth: Leveraging the stability of large caps to counterbalance the volatility of small caps, potentially resulting in more consistent returns over time.
Long-term growth potential: Investing in mid and small-caps provides opportunities for substantial capital appreciation over the long run.
Which multi-cap funds have done best to date?
Historical performance doesn’t guarantee future outcomes, but it does reflect the effectiveness of fund management over a specific period. Over the past three and five years, certain multicap funds have achieved notably strong returns, prompting many investors to consider long-term commitments to these funds and some to allocate additional funds to accumulate more units during market downturns.
Below is a table showcasing top-performing multi-cap funds that have demonstrated strong performance over an extended period, attracting interest from investors aiming to build wealth in the market.
|
Name of the fund |
5-year returns (in %) |
10-year returns (in %) |
|
Quant Active Fund |
33.55 |
22.60 |
|
Invesco India Multicap Fund |
24.21 |
18.39 |
|
Nippon India Multicap Fund |
25.55 |
17.95 |
|
ICICI Prudential Multicap Fund |
22.63 |
17.61 |
|
Sundaram Multi Cap Fund |
23.07 |
17.34 |
| Source: AMFI (As of July 12, 2024) | ||
What should you know about multi-cap funds?
When considering adding a multicap fund to your investment portfolio, ensure you have a long investment horizon of at least five years or more. These funds are well-suited for long-term investment objectives, as they can withstand market fluctuations and capitalize on the growth potential of smaller companies.
The ideal candidates for this fund type are those with a moderate tolerance for risk. Multicap funds might be a good option if you can afford to tolerate some volatility in exchange for possibly higher returns. These funds are well-suited for investors aiming for long-term financial goals such as retirement planning.
Multi-cap fund investors must take note of the following considerations too. These include:
Preset allocation: In contrast to flexi-cap funds, multi-cap funds adhere to a predetermined allocation across various market caps (e.g., 33% large, 33% mid, and 33% small). This structure offers stability but restricts the flexibility of the fund manager.
Potential for growth: Incorporating mid and small-cap stocks, which often offer higher growth potential, may result in potentially superior returns compared to large-cap funds, particularly during upward-trending markets.
Investing in mutual funds is not without risk. Before making any investing decisions, determine your risk tolerance, conduct in-depth research, and speak with a financial expert to help you navigate this.