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Year-end special: Multicap schemes didn't shine in 2018, but don't write them off

Multicap mutual fund schemes, like other equity mutual fund categories, had a tough year in 2018.

, ET Online|
Dec 24, 2018, 11.51 AM IST
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Multicap mutual fund schemes, like other equity mutual fund categories, had a tough year in 2018. The stock market correction hit these schemes hard, and category offered negative returns (-3.63 per cent) in one year. However, some multicap schemes outperformed the category average: Axis Multicap Fund that offered around 8 per cent returns in one year, followed by UTI Equity Fund that has given 5.76 per cent returns in the last one year.

“2018 was a topsy-turvy year for the multicap funds. The reason was that multicap covers all the sectors and caps in its portfolio. When the mid and smallcaps corrected sharply due to their lofty valuations, it impacted the performance of multicaps also,” says Gautam Sinha Roy, Associate Director-Fund Manager, Motilal Oswal Asset Management.

Mutual fund advisors, fund managers and financial planners still vouch for these schemes: they believe that if you own just one mutual fund scheme, it should be a multicap scheme. Sebi re-categorisation changed the rules and regulations for all the categories of mutual funds this year. Multicap category remains the only unconstrained category after re-categorisation with the flexibility to invest across market capitalisations.

“This category definitely has an edge above other categories. I personally like this category as it gives the fund manager the freedom. From an asset allocation point of view also, it is a good category for investors,” says Gopal Agrawal, Senior Fund Manager and Head of Macro Strategy at DSP Mutual Fund.

Sebi has mandated mutual fund schemes to invest in defined universe of stocks according to their investment objective. Multicap schemes, on the other, have the freedom to invest across largecap, midcap and smallcap stocks. This means the fund manager of a multicap scheme has the freedom to shift between market capitalisations based on this view on the market. This freedom to invest across capitalisations offers these schemes an edge over other categories.

According to experts, the market rally in the beginning of the year was very narrow. Only select stocks from the largecap sector participated in the rally. Multicap schemes which were majorly focusing on midcap stocks were hit at that time. “There was a stock rotation in the market with largecaps performing better than mid and smallcap. Many multicap schemes were heavy on small and midcaps and they took a beating when there was a sector rotation in the market,” says Gautam Sinha Roy.

But fund managers believe that the category will bounce back in 2019. “I think the troubles for the category are less in 2019. With the liquidity crisis sidelined and the likely change in interest rates, I think the market is in a better position and multicap schemes are bound to do well,” says Gopal Agrawal.

“As a category, I believe, multicap hasn’t done well this year. It has been a flat year for the multicap schemes. But, from a 2019 perspective, I think we are in a better place. Problems have time corrected. So, when the overall markets do well, we expect the multicap schemes to do well in 2019,” says Gautam Sinha Roy.

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