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    Why you should invest in multi cap mutual funds


    Many advisors are recommending multi cap funds in the current environment to investors.

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    Many advisors are recommending multi cap funds in the current environment to investors. This scheme which bundles large-, mid- and small cap stocks is often advised as a core portfolio strategy.

    What is a multi cap fund after the revised Sebi norms?
    A multi cap fund is a diversified equity mutual fund which can invest in stocks across market capitalisations. As per the regulatory mandate, such a scheme need to have a minimum investment in equity and equity related instruments of 65 per cent. The portfolios can comprise of large cap, mid cap and small cap stocks. They maintain an extensively diversified portfolio consisting of stocks of different market capitalisations and sectors.

    Why do financial planners recommend multi cap funds?
    Investors can get the best stock ideas across market capitalisations in this portfolio. Fund managers construct the portfolio in such a way that their best large cap, mid cap and small cap ideas are in this portfolio.

    The multi cap category gives fund managers the flexibility to keep switching holdings in the fund between large-, mid- and small-cap stocks as they deem fit, based on his outlook for the market.

    For example, when valuations in the mid- and small-cap space turn expensive the fund manager will move to large cap stocks and vice versa. Compared to this, a pure large-cap fund needs to have minimum 80 per cent of his portfolio in the top 100 stocks by market capitalisation. Over the long-term, this category of funds carries lower risk as compared to pure mid cap/small cap funds.

    Which investor should choose a multi cap fund?
    Investors who want to balance risk and volatility in a single portfolio could go for multi cap funds. This category of fund finds favour with investors who have a moderate risk appetite for equities.

    Investors who don’t want to get into the nuances of picking individual stocks or deciding which market capitalisation fund would suit them may go for multi cap funds to start with. Once they are sure of a category, they could even switch to those funds. Wealth managers believe the multi cap category of funds can be ideal wealth creators as compared to plain large cap funds.

    Since this scheme has a dynamic investment strategy, these funds may accumulate larger corpus for achieving long-term financial goals like retirement or higher education. Investors looking to stagger their investments through systematic investment plan (SIP) could also look at this category of funds.

    What is an ideal time horizon for investing in this category?
    Investors should look to invest for a time frame of at least seven-10 years while investing in any equity product.

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