Best Multicap Mutual Funds to Invest in 2023 Watch Now
Multi-cap funds invest in stocks across Large, Mid & Small market cap based on the view of the Fund Manager.
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This flexibility to switch between sectors and stocks belonging to any market capitalisation allows the fund manager to take advantage of a larger pool from which to build and manage the portfolio and deliver returns. Minimum investment in Equity & Equity-related instruments for Multicap funds is 65% of total assets. Multicap funds are a good way to take exposure to broader market and are suitable for investors with a moderate risk appetite.
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.
Who should invest in Multicap funds?
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.
How long should you stay invested in Multicap mutual funds?
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.
How to choose the best Multicap mutual funds?
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.
Top 5 Multicap funds 2022 (based on the 5-year rolling returns)
Kotak Standard Multicap Fund
Kotak Standard Multicap fund invests across market cap and sectors with a blend of growth and value styles. The fund manager follows a conservative investment style, by investing a higher proportion in large cap stocks as compared to its peers. The fund has been a consistent performer over longer durations. Thus, investors planning to invest for a long-term of 3 to 4 years may find this an ideal investment option. Yet, they should be aware of the scope for low to moderate losses.
Invesco India Multicap fund has been managed by fund managers Taher Badashah and Prnav Gokhale since its launch in 2008. Being a Multicap Fund, the fund manager has the flexibility to invest across market capitalizations. The fund was earlier a mid and small cap fund and continues to have higher investment in the mid and small cap space. However, the fund hasn't been consistent in beating its benchmark over the long term.
As the name suggests, SBI Magnum Multicap fund invests in large, mid and small cap stocks while maintaining a small exposure to debt/cash instruments when required. Despite being able to invest across market capitalizations, the fund predominantly invests in the large and mid cap space. It has consistently beaten the benchmark over the long term, however, single year performance remains volatile.
Aditya Birla Sun Life Equity Fund is a multicap fund investing across market capitalizations with a slightly higher allocation to large cap stocks. The fund is a fairly consistent performer over the long term. The fund performance has in fact improved considerably since the current fund manager took over in Oct 2012.
Similar to its peers, Parag Parikh Long Term Equity Fund invests in stocks across market capitalization. However, what sets it apart is the fund's international exposure. The fund can hold upto 35% in international stocks and upto 35% in cash if deemed necessary by the fund manager. The fund follows a value investing strategy buying stocks that trade at a discount to its intrinsic value.
The fund has consistently beaten its benchmark over the long term and is the best performing fund in 2022, thanks to its global exposure.
Things to consider before investing in multi-cap mutual funds
Your risk appetite
Your flexibility or willingness to take risks is a crucial aspect to consider. Do check whether the investment product is meant for you, both financially and emotionally.
Your asset allocation
Asset allocation is an important aspect of returns. Investing in a popular fund without taking the asset allocation into consideration should be avoided.
Sufficient diversification
It's wise to diversify your investment across 4-5 mutual fund schemes. This way you can ensure that their strategies and portfolio not only complement each other but also your direct stock portfolio.
When investing a lump sum, you need to answer one very important question
Before arriving at the decision, ask yourself, can you expect a good enough return by investing in the fund right now? Ultimately, an equity fund is a collection of stocks and if most of them are currently expensive (and probably show high past returns today); you are likely to get a low return moving forward.
Are multi cap mutual funds risky?
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.
If you liked what you read and would like to explore the Multicap fund domain to grow your wealth, do register at MoneyWorks4me.com. By registering you can avail amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.
What are the Color-coded tags or buttons that accompany every
fund?
Every fund is assessed on the following:
Consistent Outperformers : Track record of having generated returns above a benchmark on a
3-year rolling basis. Consistent performers are Green, followed by Orange. Red have an
inconsistent track record on outperforming the index.
The average 3-year rolling returns number appears in the first button.
Quality of Portfolio is assessed based on the quality of each stock held. Predominantly high
quality stocks get a Green second button, followed by Orange and Red (large amount of risky
stocks).
Upside Potential: Every fund is assessed on what returns it could deliver in the next 5
years based on it.
How do you select the fund for SIP?
Select the fund that is Green on Performance which shows it has
consistently outperformed the index. Select one with a
high average 3-year rolling returns - the number in the first button. And select one with a Green
rating on Quality-the
second button.
How do you find the best funds within a category?
Use the Funds
Screener and select the category. It shows the
funds with Green on Performance and Quality right on the
top. The ones with the higher average 3-year rolling returns are ranked the highest. Funds with less
than 5 years
returns history are colored Grey on Performance. Since the track record is not for an adequately
long period they
feature lower in the list.
How do you build a portfolio with funds?
Build a well-diversified portfolio with funds that assures you
of a stable growth through market and economic cycles and
funds that enhance your portfolio returns over the long run.
Core Funds: Choose from Large cap, Large and Mid cap and Flexicap funds.
Booster Funds
Choose from Mid and Small cap funds.
Select a Sector or Thematic Fund that is likely to outperform in the long term.
How do you analyze your current fund portfolio?
Use the Fund Portfolio Analyzer, Sher-ya-Billi to check if your
portfolio will deliver healthy returns or disappoint
you. Go to Fund Portfolio
Analyzer. You can also upload details of your funds in the Portfolio Manager and see the
report on this page.
What must you be careful about when add a new fund to your
existing portfolio?
When adding a new fund check how different is the fund compared
to your portfolio by using the link in the Right
allocation box on the Fund Decision Maker.
What are the main problems in a Fund Portfolio?
Most investors have more, many more funds that they should-over
diversified. This tends to reduce returns. Many
investors have more of the same i.e. they have funds that have very similar portfolios and hence the
fund portfolio is
not well-diversified. Either there are too many large cap dominated funds or far too many mid and
small cap funds. What
you require is a good, balanced mix. Finally investors don't know when to exit a fund and end up
carrying it even though
the future upside potential is very low.
Create stable, long-term investment portfolio with strong, consistent stocks.
MoneyWorks4Me method for rating and ranking mutual funds for SIP
MoneyWorks4Me rating and ranking of funds for SIP is available to subscribers only. Moneyworks4Me is not a rating and
ranking agency, however it is required that users have a way of selecting funds and building a Portfolio. The method used by it are described below to enable users to understand the logic behind the rating and ranking Subscriber will find more details on this in the
various content made available from time to time. In case you need more please write to besafe@moneyworks4Me.com
MoneyWorks4Me rates and ranks mutual funds based on the following data-driven system:
Performance Consistency: This is measure based on whether the fund has beaten the benchmark index consistently. For
this we compare the 3-year rolling returns of the fund with the benchmark for a minimum of 5 years and preferable 10
years. The period of rolling is one month and holding period is 3 years. Fund are color-coded Green on Performance when
the fund beats the benchmark more than 90% of the time. It is Orange if it beats 80% to 90% of the time and Red if less
than 80%. Funds with less than 5 year data are color-coded Grey.
Quality of Portfolio Holding: Moneyworks4Me has color-coded stocks as Green, Orange and Red based on whether the
company's performance has generated a ROCE above a threshold level (cost of capital) over 10 years (minimum 6 years) and
generated positive Free Cash Flow. For Banks it checks whether ROE is greater than 15% and sales has grown over previous
year. Stocks that perform consistently on these combined metrics are color-coded Green (min score 14 out of 20), Orange
(between 8 and 14) and Red (less than 8 out of 20).
Fund are color-coded Green provided the portfolio has 70% holding in Green stocks but not more than 20% in Red stocks.
Funds with more than 20% Red stocks in the portfolio are color-coded Red. The rest are Orange funds
Funds ranking in screeners: Performance Consistency and Quality are two parameters used for ranking funds for SIP. The
ranking as follows GG, GO, GR, OG, OO, OR, RG, RO and RR.
With the same color-coded funds, the one with the higher Average 3-year rolling returns (over 5 to 10 years), the number
that appears in the Performance tag, ranks higher.
Here is the summary:
The third tag Upside Potential is not relevant for SIP. It is relevant for lumpsum investments in Mutual Funds.
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