Multi-cap Mutual Funds: What are these?

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Multi-cap Mutual Funds: What are these?
These mutual funds are diversified in nature and invests across market capitalization i.e. such funds as per the market outlook rebalance the portfolio. Broadly, the portfolio of such funds includes all small cap, mid-cap and large-cap stocks. And with a mix of stocks, the risk posed by such funds is comparably less than pure small-cap or mid-cap funds.

Who should invest in multi-cap mutual funds?

First time and not-so aggressive investors who wish to have an exposure in equities but have a lower risk appetite can park their funds in multi-cap mutual funds. With a mix of stocks across market capitalization, any high degree of volatility shown by either mid-cap or small-cap funds can be offset by the stability provided by large-cap funds.

Also, investors who have small investment portfolio or are not well-versed with the technique of asset allocation in respect of investments can also put their bet on multi-cap mutual funds. Investment in theses funds is also suitable as the portfolio includes shares from varying market segments at different market cycles. So, such diversified funds offer a better cushion in contrast to funds with focus only on one segment.

Nonetheless, the returns from such multi-cap funds are highly dependent on the fund manager's intelligence as to how well he or she is able to time the market and include stocks as per the market conditions. And with a more number of stocks to choose from, there is a likely probability of fund manager going wrong in his or her allocation strategy. So, in comparison to large-cap or index funds, multi-cap funds carry a higher risk. And as the performance and correspondingly your returns from such a fund are more so dependent on the fund manager's capability it will be to your advantage to assess the record of the fund manager before plunging your hard-earned money in multi-cap funds.

Story first published: Monday, April 21, 2014, 12:16 [IST]
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