Why do wealth managers recommend these funds?
It is very difficult for investors to understand the valuations of large -, mid- and small-cap funds and then take a decision as to which category will do well in the near future. Multi-cap funds give flexibility to fund managers to keep switching holdings in the fund among large-, mid- and small-cap stocks as he deems fit, based on his outlook for the market. For example, when valuations in the mid- and small-cap space turn expensive the fund manager can move to large-cap stocks and vice versa. Alternatively, a fund manager can also decide to buy the best ideas and stick to a mix of large- ,, mid- and small-cap stocks without any market-cap bias. Compared to this, a pure large-cap fund needs to have a minimum 80% of his portfolio in the top 100 stocks by market capitalisation, or a mid-cap fund needs to have 65% of corpus in the stocks with market-cap between 101 and 250.
Who should invest in multi-cap funds?
Many wealth managers believe investors going for long-term SIPs of above 10 years can opt for multicap funds. Multi-cap funds can be ideal wealth creators as compared to plain large-cap funds. Because of their dynamic investment strategy, these funds may accumulate larger wealth for achieving long-term financial goals like retirement or higher
education. Investors looking to stagger their investments through systematic investment plans (SIP) could also look to using this category of funds. Investors who don’t want to get into the nuances of picking individual stocks or deciding which market capitalisation fund would suit them could opt for such funds.Investors who don’t want to get into the nuances of picking individual stocks or deciding which market capitalisation fund would suit them could opt for such funds.
What time horizon should investors look at?
As with any equity product, investors should look to invest for a time frame of at least 5 years. This helps them go through a market cycle of ups and downs and even out volatility and helps them benefit from the power of compounding.