Multi-Cap Funds: Year-End Special: ‘SIP in Multi-Cap Funds Helps in Long-Term Wealth Creation’ | Jobs Vox


Just like life, investment diversification minimizes inconvenient or inefficient moments. Investing in different or different assets or asset classes helps the investor to build wealth to a great extent. But many investors fail to implement this approach. Lack of knowledge, procrastination, inability to invest, blind pursuit of returns and wrong choice of investment vehicles are few reasons why most retail investors fail to build long-term wealth. They forget that sustainable solutions can only be achieved if you follow an investment style that has a built-in diversified investment approach and helps you beat inflation in the long run. For these investors, multi-cap funds fit the bill.

Let’s understand why multi-cap funds can be a prime asset for retail investors:

A multi-cap equity fund, as the name suggests, invests in stocks of companies with market capitalization – that is, a minimum of 25% each of large, mid and small cap stocks and the remaining 25% can be either market capitalization or debt stocks. and money market instruments etc. as per the plan document. Fund managers have the discretion to decide where they want to spend the rest of the money.

Before confusion sets in, let me clarify. Flexi cap funds invest in stocks of large, medium and small cap companies. However, there is no specified minimum allocation limit for investments in large, medium and small companies. The Flexi Cap category is more fund-manager-driven and may be overweight in a particular market cap category. As we all know, equity markets are volatile in the short term. Investing in stocks for the short term may not pay off for investors. Investors have learned this aspect, and the average tenure of equity investments across the mutual fund line has increased over time with 51% of investors holding their investments for more than 24 months (AMFI data as of October 2022). This number was 65% in 2013 and dropped to 32% in 2018.

Even if investors gradually increase their holding time, trying to invest in the most profitable equity markets can cause them to lose their investments. Volatility and returns are not the same across all segments of the equity markets over time. Sometimes large-cap stocks do well and sometimes mid and small-cap stocks do well. In the last five calendar years ending CY2021, the Small Cap Index – Nifty SmallCap 250 TRI (Total Return Index) has outperformed its mid and large cap peers. And in CY 2018 and 2019, Nifty 100 TRI emerged victorious.

Investors find it difficult to gauge which segment is outperforming and which is underperforming. Inexperienced investors blindly chase income. According to a Morningstar research and rating firm report, investors earned between 2.5% and 5.75% lower returns in each fund category over the three-year, five-year and ten-year periods ending June 2022. It requires building a diversified portfolio. In this context, the structure of multi-cap plans works. A multi-cap scheme means that the limit in each sub-cap is the limit. 25% on each of large-cap, mid-cap and small-cap – benefits and helps investors in wealth creation in the long run.

Multi-cap schemes, therefore, can be a good choice for the core portfolio of investors who want to invest in stocks and participate in broad-based growth. Currently, the Indian economy is at a critical juncture. The government, which has supported economic growth for a decade in the Indian economy, has implemented reforms, focused on the manufacturing sector, strong domestic demand with positive macroeconomic factors. Investing in multi-cap funds through a Strategic Investment Plan (SIP) helps investors create wealth over the long term.

(Sanjay Bembalkar is co-head of equities at Union Mutual Fund.)


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