Equity Multi Cap funds- an Ideal choice for wealth creation
Despite several difficulties faced by every individual nationwide amid Covid 19 pandemic followed by a lockdown the stock market showed a strong rally in the last one year due to a slew of majors taken by the government of India. Following the second wave of the corona, again lockdown has been imposed in few states but the recent announcement by Indian government that everyone above the age of 18 to be eligible to get the covid-19 vaccine will definitely boost the sentiments of investors and help us coming out of this problem. As we believe that ‘every dark cloud has a silver lining’ and accordingly, even though some risks to markets exist, there are enough and more reasons to be positive about the future. We have seen that historically equity has always outperformed other asset classes and has the potential to multiply investors’ wealth in long term. Based on the market capitalization of the companies, their equity shares are classified as large, mid, or small caps. Historical analysis reveals that large-caps often experience slower growth with lower risk, while small-caps have higher growth potential but come with higher risk. For a successful investment portfolio, a mix of stability and growth is very important. It is ideal to say that investors should have higher allocation in the segment during a particular time which expects to perform better than the broader market but practically it becomes difficult. And hence a well diversified multi cap fund can be a good choice.
Why multi cap
In September last year, SEBI decided to partially modify the scheme characteristics of Multi Cap Funds with its mandate to invest at least 25 percent each in Large, Mid & Small Cap segments. Yet, a fund manager has flexibility to allocate a balance 25 percent in any segment based on the market conditions. As most of the schemes that time in this category had major exposure in large cap, AMCs preferred to reclassify their schemes as flexi cap following the introduction of the new category by SEBI. Multi cap funds having mandatory exposure across the market capitalisation gives an opportunity to the investors to stay well diversified at all the time. In fact, they provide a curated combo of 3 focus portfolios – Focused Large Cap, Focused Mid Cap & Focused Small Cap in one portfolio.
Who should invest in it
As multi cap funds maintain an extensively diversified portfolio consisting of stocks of different sectors and market capitalisation make it suitable for the investors who are looking for wealth creation in the long term. They combine the stability of large caps and the high growth potential of mid & small caps in one portfolio and is an ideal vehicle to play a high growth cycle. It will be suitable for Long term Equity Investors with High risk appetite with an Investment horizon of 5 years and above. New investors especially those who want to start their SIP in an equity fund with a small amount can also consider a multi cap fund as they will benefit from a well-diversified yet focused approach in a single scheme. Multi cap funds may be suitable for a lump sum investment as well as a part Systematic Investment Plan (SIP).
As there are only a handful of schemes in this category there is a good scope for more AMCs to introduce multi cap funds providing investors a better choice. Aditya Birla Sun Life mutual fund has recently launched an NFO of multi cap fund. The NFO will remain open between 19th April 2021 and 3rd May 2021. According to Scheme Information Document (SID) the minimum investment amount in the scheme is Rs. 500 and in multiples of Re. 1 thereafter. The scheme will follow a Bottom-up approach of stock selection to build highly curated portfolio of top conviction ideas. It means as per the standard definition of the bottom-up approach, the focus for stock selection will on a specific company and its fundamentals rather than the industry in which that company operates or on the greater economy as a whole. The assumption is that an individual company with strong fundamentals may do well even if the sector in which the company operates underperforms during a specific time. The scheme will remain biased towards secular growth opportunities from across the market spectrum that are aligned with this Growth cycle and expects to provide healthy participation in the ensuing market recovery. Investors with high-risk appetite and an investment horizon of five years or more should consider investing in this scheme.
