Best Multicap Mutual Funds to Invest in 2023 Watch Now

Multicap funds usually invest in stocks across Large, Mid and Small market cap. This flexibility to switch between sectors and stocks belonging to any market capitalization allows the fund manager to take advantage of a rather extensive pool from which to build and manage the portfolio and deliver returns.

Multicap funds are a good way to get exposure to a broader market and are suitable for investors with moderate risk appetite. Investors who want to cash in on the growth potential of mid and small-cap stocks without exposing themselves to high risk should ideally invest in Multicap funds.

The Multicap Fund Manager has the mandate to change the mix of large/mid/small cap in the fund's portfolio based on his assessment of the risk-reward opportunities in a given period. The mid/small-cap fund manager has less room to reduce the risk quotient and hence these funds are usually more volatile.

Just like any other equity product you need to be invested in a Multi cap fund for the long term (5-7 years) to ensure a better ROI.

Quality of portfolio

An important parameter in shortlisting a fund for investment is assessing the underlying stocks in the portfolio of the fund. This helps you understand how much risk you are willing to take for that anticipated extra return in your portfolio. Avoid funds with large exposure to small and risky companies.

Performance Consistency

Performance consistency is critical as a fund that is at the top today might not continue to be so in the next 1/3/5 years. A fund that has a proven track record of consistently exceeding benchmark returns is what you should opt for. Such funds give us more confidence in the fund managers' ability to do so in the future too. Avoid funds with poor return consistency at all times.

Past 5-year rolling return

You should look at an individual fund's returns performance versus its benchmark on a rolling basis of a reasonable time-frame of say 3 or 5 years rather than every year performance or point to point past performance. Analyzing funds on the basis of past performance is inadequate as past poor performance may get hidden in recent good performance and vice versa.

Turnover ratio

Choosing a fund with the low turnover ratio is your best bet as it helps you avoid brokerage and impact costs. An investor should be wary of these costs as they're hidden (not disclosed by the AMC), but definitely eat up your returns.

Multi-Cap Mutual Funds in India can be a viable investment option, however, you should remember that they have an inherent market risk associated with them. Risks are unavoidable, because we are dealing with projected values in the future, and the future always remains uncertain. Understanding the risks can help you take action to control and manage them. Your expectations can then be raised or lowered to do justice to the risks you have taken.

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1. Core Funds: Choose from Large cap, Large and Mid cap and Flexicap funds.
2. Booster Funds
   1. Choose from Mid and Small cap funds.
   2. Select a Sector or Thematic Fund that is likely to outperform in the long term.