Exploring multi-cap funds - Top 10 best-performing multi-cap funds

Multi-cap funds offer a balanced approach to equity investing, with potential for high returns and the benefit of diversification across market capitalisations.

Multi-cap funds are equity mutual funds that invest in stocks across Large-Cap, Mid-Cap, and Small-Cap segments, providing a diversified approach to equity investing. SEBI mandates that multi-cap funds invest at least 25 per cent of their assets in each of these categories. This offers exposure to various market capitalisations, making them flexible and versatile for investors.

How are multi-cap funds managed?
A multi-cap fund’s asset allocation strategy allows the fund manager to shift investments based on market conditions. During a bull run, small- and mid-cap stocks may offer higher returns, while large-cap stocks might provide stability in volatile periods. The manager aims to balance risk and return by adjusting the proportion of large, mid and small-cap stocks according to market trends.

Role of the fund manager in multi-cap fund
The fund manager plays a critical role in multi-cap funds, deciding which stocks to invest in across different market capitalisations. Active management is essential, as the managers' decisions on sector allocation, stock picking, and timing directly affect the fund's performance. A skilled fund manager balances risk and reward by diversifying across sectors and capital sizes, aiming to outperform benchmarks over the long term.

Advantage of investing in multi-cap funds

• Diversification: Investment across large-, mid-, and small-cap stocks helps spread risk.
• Flexibility: Fund managers can shift allocations based on market trends.
• Potential for Higher Returns: Mid and small-cap stocks may deliver strong growth in favourable conditions.

Disadvantage of investing in multi-cap funds

• Higher Risk: Investments in mid and small-cap stocks tend to be more volatile.
• Fund Manager Dependency: The performance relies heavily on the fund manager’s skills and market outlook.

Top 10 best-performing multi-cap funds

*Schemes are ranked according to their
3-year returns.Data as of September 10,
2024

Analysis of Top Multi-Cap Funds

• Top Performer: Quant Active Fund has delivered a stellar 3-year return of 23 per cent and a 5-year return of 34.9 per cent, making it a strong contender for growth-oriented investors.
• Large Fund Size: Nippon India Multi Cap Fund boasts the largest fund size at Rs 37,150 crore, reflecting its popularity among investors, with solid returns of 29.4 per cent (3Y) and 28.6 per cent (5Y).
• Steady Performers: ICICI Pru Multicap Fund and Baroda BNP Paribas Multi Cap Fund offer consistent performance over 3 and 5 years, making them reliable options for long-term investors.

Who should invest in multi-cap funds?
Multi-cap funds are ideal for investors with moderate to high-risk appetites looking for diversification in their equity portfolio. These funds suit investors who can tolerate market volatility and aim for capital appreciation over the long term.

Conclusion
Multi-cap funds offer a diversified and balanced investment option for investors. By investing across different market cap segments, they can potentially achieve higher returns while managing risk. However, it's essential to conduct thorough research and consider individual risk tolerance before investing in multi-cap funds.

Disclaimer: The article is for informational purposes only and not investment advice.