In a turbulent and risk averse market, investors are weary of going all out and investing in emerging equities. Investors are constantly trying to juggle risk and reward to maximise their returns within an acceptable risk level. As an investor you are probably well versed with the benefits of diversification in your portfolio – lowering risk by investing across different equities or different funds. What if you could achieve diversification within your fund selection as well?
This is where multi-cap funds can come in.
What is a multi-cap fund?
A multi-cap fund is an equity oriented mutual fund scheme that diversifies its investment corpus by investing in stocks of companies across different market capitalisation categories
It aims to provide the benefits of large cap and mid and small cap all in one fund. Consider a multi-starrer film - which has a mix of leading stars and upcoming actors in its cast. The leading stars give the film its mass appeal and the upcoming actors give it freshness and a new attraction for audiences.
Multi-cap fund performs in the same way. Large cap stocks, being of established companies are considered more stable and secure and are also generally easier to liquidate in a turbulent market. While small and midcap stocks potentially offer better opportunities for long term growth. Multi-cap funds combine both these with an aim to balance risk and reward better.
Multi-cap funds are more flexible and can adapt better to a volatile market by tweaking its allocation across large caps, midcaps and small caps. Multi cap funds allow fund managers to move their investments across different sectors and different size companies depending on where the opportunity lies at the time. Like an umbrella that provides shade in summer, shelter in the rains and warmth in the winters, a multi cap fund is an all-weather fund.
Let’s look at a multicap fund of Aditya Birla Sun Life Mutual Fund more closely-
Aditya Birla Sun life Equity Fund - An open ended equity scheme investing across large cap, mid cap, small cap stocks. Some of its key features include:
It is an open ended fund so the investor has the flexibility of investing & redeeming his investment at any time.
It targets an asset allocation of 90% equity and balance 10% towards debt & money market instruments. It aims to maintain an allocation of 25 to 35% towards small and mid cap stocks with the balance majority allocated towards large caps. The fund manager has the flexibility within these ratios as well to adjust to market conditions and modify allocation accordingly.
The fund follows a blend of top-down and bottom-up investment strategy to select stocks. Top down approach picks stocks based on performing sectors and bottom up approach seeks out stocks which have potential for high growth based on analysis of its underlying fundamentals.
Is this fund for you?
For most of us, it becomes difficult to research and understand the valuations of large cap, mid cap and small-cap funds and then decide as to which category should we invest in. Hence, if you are looking to invest for 5 years or more & wish to capitalise on growth potential of investing in the equity market but do not want to get involved in choosing the right market capitalisation or sector or individual stocks, then this fund can be the right choice for you. This fund is suitable for investors with moderately high-risk appetite who would like to leverage the stability of large caps as well as the high growth potential of midcaps & small cap over the long term.
For further information on the scheme, please refer SID/KIM of this scheme.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.