Why You Should Invest in Multi-Cap Funds
Multi-cap funds refer to a type of mutual fund where investments are made in a diversified portfolio of stocks, along with the flexibility to put the money in companies of different market capitalisations, such as small-cap, mid-cap and large-cap stocks. This blog has the details on why it is a big winner for investors.
Introduction to multi-cap funds
Multi-cap funds refer to a type of mutual fund where investments are made in a diversified portfolio of stocks, along with the flexibility to put the money in companies of different market capitalisations, such as small-cap, mid-cap and large-cap stocks. 'Multi-cap' in the name is the short form for 'multiple capitalisations'.
The following are some of the key features of multi-cap funds:
- Diversification: Multi-cap funds help with diversification by investing in firms of various sizes and across different industries and sectors. Through this diversification, the risk can be spread and the effect of volatility in any single segment of the market can be minimised.
- Flexibility: Other variants of equity funds have specific requirements to invest in a pre-defined market cap segment, such as large-cap funds that focus on large companies and so on. However, for multi-cap funds, there is the provision of flexibility to adapt to evolving market conditions. Fund managers are able to adjust their portfolios depending on their evaluation of market risks and opportunities.
- Risk and return: Multi-cap funds usually provide a balance between the expansion potential of small and mid-cap stocks and the stability that is associated with large-cap stocks. They are a preferred option for investors who want a middle ground in terms of return and risk.
- Active management: Most multi-cap funds are managed actively. This implies that a fund manager constantly monitors market conditions and decides which stocks to purchase and sell within the fund.
- Investment objective: The exact investment strategy and objective of multi-cap funds differ from one fund to another. While some eye value investing and growth investing, others choose a combination of both, which depends on the goals of the fund and the expertise of the manager.
Reasons for investing in multi-cap funds:
Investors who are looking for stable investment avenues choose to put their money in multi-cap funds for a number of reasons, subject to their risk tolerance, financial goals and investment preferences being met. The following are a few of the main motivations for investing in multi-cap funds:
- Wider gamut of stocks: Multi-cap funds help investors achieve broader diversification by investing money in a combination of small-cap, mid-cap and large-cap stocks across various industries and sectors. The risk can be spread out and underperforming assets can be offloaded when required. Another advantage that arises out of this is the flexibility of investments. The fund has a combination of stocks which can be adjusted based on market risks and opportunities. The flexibility to adapt to evolving market conditions is something that investors find appealing.
- Balanced profile of risk and return: Through multi-cap funds, investors hope to find a balance between returns and risk. These are a great option for those who are willing to make investments with moderate risk in exchange for potentially higher returns. This is especially useful for those who want to get reasonable returns, but without having to risk too much.
- Growth Potential: The fact that multiple capitalisation companies can be invested in implies that investors have access to a larger variety of stocks of all sizes. Through small and mid-cap stocks there is opportunity for growth, while stability is offered by large-cap stocks.
- Investment expertise: Investors have the advantage of being able to access the expertise of professional fund managers who make the investment decisions for them. The managers have extensive experience, as well as the resources that help them make informed investment choices.
- Convenience: One of the main reasons why investing in multi-cap funds is convenient and preferred is because of the ability to get access to a diversified portfolio without having to choose and manage individual stocks. This saves both time and effort, which is why investors find it to be an attractive option.
Investors need to carefully consider their financial standing, targets and tolerance for risk before putting money in multi-cap funds. The objectives, strategy and performance of multi-cap funds, despite their diversification and flexibility, vary from time to time. These, like other investment vehicles, depend on market conditions. Thus, it requires conducting research, analysis and due diligence on the fund that is being chosen. Taking the assistance of a financial advisor will help get access to personalised guidance so that informed investment decisions can be made.
The biggest advantage of collaborating and taking the help of a financial advisor is that they are constantly in touch with the market and can sometimes even anticipate how the latest news and events will affect the market. With the latest tech and applications, monitoring the fund from mobile devices has become convenient and easy. Also, these provide updates in real time, enabling investors to be at the top of their game. Multi-cap funds are the best choice for those looking for the right balance between stability and returns in the long run.