Investors seeking long term capital appreciation through equity investment can consider investing in equity mutual funds. These are a mutual fund category which predominantly invests in equity and equity related instruments along with investment in other money market instruments like government securities, debt bonds, etc.
Investors should, however, remember that mutual fund investments are subject to market risk and returns are never guaranteed.
But this doesn’t mean that you are bound to lose your money through mutual fund investments. If you know your financial goal, your risk appetite, your investment horizon, and if you manage to invest in a scheme which shares the same investment objective as you do, there are chances of you making some decent profits.
So if you are someone with a moderately high risk appetite who wishes to invest in an equity fund which has a diversified portfolio, you can consider investing in multi cap funds. To find out more about multi cap funds, read on:
What are multi cap funds?
In SEBI’s own words, A multi cap fund is ‘An open ended equity scheme investing across large cap, mid cap, small cap stocks. Of the total assets, a minimum of 65 per cent investment is made in equity and equity related instruments‘.
Multi cap funds let you take advantage of all the three caps by diversifying your investments is small, mid and large cap company stocks. Diversification means less risk, which also means that your investments stand a chance to reap some benefits too.
Here are few things about multi cap funds which an investor must know, especially if they are planning to invest in these funds:
1. Investment objective – Multi caps fund usually aim to generate long term capital appreciation by investing in a diversified portfolio of equity and equity related instruments across market capitalization. So if you are an investor who shares a similar investment objective, you can consider investing in multi cap funds. Multi cap mutual funds aim to offer investors an ideal mix of equities in an attempt to provide long term returns while minimizing risks associated with market volatility.
2. They offer great flexibility – Multi cap funds usually offer a great amount of flexibility, especially for the fund manager who can switch the portfolio composition depending on the market conditions to maximize profits. For example, if mid cap stocks are underperforming, a fund manager has the liberty to change the asset composition and invest in large and small cap stocks to give the fund some stability.
3. There are some risks involved too – Remember that multi cap funds are equity oriented funds. And, investments made in the equity market are subject to market volatility. Hence, returns are never guaranteed. So investors should first identify their risk appetite, and only if they have some risk appetite, they should consider investing in multi cap funds.
4. Investment horizon – Equity investments tend to outperform and beat their benchmarks if stayed invested for the long run. The same applies to multi cap funds, and hence, if you are someone with a long term investment horizon, chances of you benefiting from your multi cap investments are higher. Bear in mind that wealth creation or building of a corpus takes times, it cannot happen overnight. It is hence advisable to have a long term investment horizon when considering investing in multi cap funds.
5. They are ideal to invest through SIP – There are two ways to invest in multi cap funds- either through lump sum payment or payment through SIP. If you have surplus money parked and wish to invest all at once, you can opt for lump sum payment. On the other hand, if you wish to give your multi cap funds a systematic approach, you can consider opting for SIP. Systematic Investment Plan or SIP is a payment method, where an investor can instruct their bank, and a fixed amount is debited every month on a predetermined date, and then the money is transferred to his / her multi cap fund. If you too wish to reap benefits of SIP, we recommend you begin investing soon.
We hope that the above pointers about multi cap funds help come in handy while making an investment decision.