It’s raining new fund offers (NFOs) in the stock market these days with every mutual fund house doling out a new offer, albeit in different categories. Take, for example, how Mirae Asset Mutual Fund recently launched its Mirae Asset Multicap Fund, thus, ringing forth an addition to the mutual fund industry’s multi-cap fund category.
Whether to invest or not invest in a multi-cap fund stems from the raging debate between multi-cap and flexi-cap funds and the difference in benefits of investing in them.
For example, multi-cap funds consist of a diversified portfolio of companies with varying market capitalizations, including large-cap, mid-cap, and small-cap stocks. These funds distribute investments equally among large-cap, mid-cap, and small-cap companies. By investing in a single multi-cap fund, investors gain exposure to a wide range of market capitalization stocks.
Deciding between multi-cap and flexi-cap funds
Multi-cap funds enable investors to achieve this diversification as per the regulations set by the market regulator SEBI. These funds are required to allocate a minimum of 25 per cent to each of the large-cap, mid-cap, and small-cap stocks within the category, ensuring a balanced distribution across different market capitalizations.
This is different from their similar but not so similar peers called flexi-cap funds. Flexi-cap funds allocate their investments across a diverse range of market capitalization stocks and various sectors or industries. The fund’s portfolio is regularly rebalanced in response to prevailing market conditions. Unlike conventional funds that may focus on a specific sector, flexi-cap funds embrace a more diversified approach, distributing their investments across companies from different market capitalizations and sectors. This strategy allows for greater flexibility and adaptability to changing market dynamics.
In a market full of mutual fund investments varying in terms of investment portfolios and market capitalizations, does it make sense to put your money in a multi-cap fund?
Viral Bhatt, Founder, Money Mantra said, “Multi-cap funds are considered to be a moderate-risk investment. This means that there is a chance that you could lose some of your money, but the potential for high returns is also there. Some of the investors who may benefit from investing in multi-cap funds include:
- Young investors who have a long-time horizon and are looking for growth potential.
- Investors who are looking to diversify their portfolio and reduce risk.
- Investors who are willing to take on a moderate level of risk in exchange for the potential for high returns.
It is important to note that multi-cap funds are not suitable for all investors. If you are risk-averse or have a short investment horizon, then you may want to consider other investment options.”
Interpreting Mirae Asset Multicap Fund offer
Before you rush in to validate the decision of choosing or ignoring this fund depending on your financial goals, an assessment of the fund’s investment objective and asset allocation will help decide if this fund is worth your consideration as a part of your long-term investment journey.
As per the scheme information document (SID) issued by the asset management company (AMC), the investment objective of the scheme is to provide long-term capital appreciation from a portfolio investing predominantly in Indian equity and equity-related securities of large-cap, mid-cap, and small-cap companies. However, there is no assurance that the investment objective of the scheme will be realized.zz
Under normal circumstances, the fund’s asset allocation will be as under:
| Instruments | Indicative allocations (% of total assets) | Risk Profile | |
Minimum | Maximum | ||
Equity and Equity-related Instruments of Large, Mid, and, Small cap companies of which | 75
| 100 | High |
Large Cap Companies | 25 | 50 | |
Mid Cap Companies | 25 | 50 | |
| Small Cap Companies | 25 | 50 | |
Debt securities (including securitized debt & debt derivatives) and money market instruments | 0 | 25 | Low to Medium |
Units issued by REITs and InvITs | 0 | 10 | Medium to High |
Investing in large-cap stocks often offers stable returns, whereas investing in midcap and small-cap stocks can lead to significant returns over the medium to long term. By choosing this multi-cap fund, investors can benefit from opportunities that align with market cycles.
The combined allocation to mid-cap and small-cap stocks is around 50 per cent. Investing in the midcap and small-cap segments of such funds entails higher risk, and there is a possibility of capital being at risk. Caution and careful consideration are advised before making investment decisions.
Should you invest in the Mirae Asset Multicap Fund offer?
The fund is no doubt new. However, past returns by multi-cap funds have underlined a decent performance. Since, these investments allocate the investment money equally between large-cap, mid-cap, and small-cap stocks, investors stand to gain on movement in any of these market caps.
Multi-cap funds have the benefit of capitalizing on the varying performance of different market segments, such as large-cap, mid-cap, and small-cap, across different time periods. This inherent flexibility enables these funds to potentially deliver consistent returns, adjusted for risk, throughout diverse market cycles.
However, what constantly bugs investors is the fact that this is a new fund. Many investors decide their choice of mutual funds by focusing on their past five to 10-year returns or inherent volatility in these funds as evident in the funds’ standard deviation. Other factors like “Rank within Category” and “Point to Point Returns” are also considered before deciding which mutual fund to invest in.
The recently launched new fund offer holds much promise owing to its asset allocation and the reputation of the mutual fund house. But is it enough to put your money in this fund?
Many personal financial analysts are averse to the idea of opening your purse to any NFO, irrespective of the nature of the fund, the reason being a lack of information regarding the fund’s potential. Though past returns do not mirror future performance, jumping into an NFO that offers nothing beyond hope and optimism may not be the right move when deciding your next mutual fund investment.
