Numerous investors are curious about multi-cap mutual funds and their potential to generate long-term wealth. To determine which multi-cap funds can offer the highest returns and add appropriate value to an investment portfolio, it’s crucial to grasp the nature of these funds and understand why so many investors are eager to invest a portion of their earnings in them.
For those unfamiliar, multi-cap funds diversify investments across companies spanning the market capitalization spectrum, from large, established firms (large-cap) to mid-sized companies poised for growth (mid-cap), and smaller, emerging companies (small-cap).
By allocating your investment across various market capitalizations, you gain the advantages of diversification. This ensures that your portfolio is not overly dependent on the performance of any specific company size. If one segment performs poorly, the others can potentially mitigate the risk. There is significant potential in these funds.
Multi-cap funds target long-term capital appreciation. By capturing growth across the market spectrum, they have the potential to provide better returns compared to investing solely in a single market capitalization category.
Gaining from multi-cap investments
The following table illustrates the 10-year performance of multi-cap funds, thus, helping to assess which funds are more likely to perform in the future too. Assuming someone invests ₹5000 every month in any of the below-mentioned multi-cap funds for 20 years.
|
Name of the fund |
10-year returns (in %) |
Invested amount (in Rs) |
Estimated returns (in Rs) |
Maturity amount (in Rs) |
|
Quant Active Fund |
23.95 |
12,00,000 |
2,78,67,688 |
2,90,67,688 |
|
Invesco India Multicap Fund |
19.57 |
12,00,000 |
1,36,13,663 |
1,48,13,663 |
|
ICICI Prudential Multicap Fund |
18.24 |
12,00,000 |
1,09,41,732 |
1,21,41,732 |
|
Nippon India Multicap Fund |
18.23 |
12,00,000 |
1,09,23,726 |
1,21,23,726 |
|
Sundaram Multi Cap Fund |
18.04 |
12,00,000 |
1,05,87,025 |
1,17,87,025 |
|
Baroda BNP Paribas Multi Cap Fund |
16.96 |
12,00,000 |
88,40,947 |
1,00,40,947 |
| Source: AMFI (As of March 28, 2024) | ||||
Why invest in multi-cap funds?
While large-cap stocks generally offer more stability, they also typically have lower growth potential. Conversely, small-cap and mid-cap stocks can provide greater growth opportunities but come with increased risk. Multi-cap funds enable you to harness this growth potential by incorporating exposure to smaller companies, while also retaining stability through large-cap holdings.
Fund management: The performance of a multi-cap fund largely hinges on the fund manager’s skill in choosing the appropriate companies across various market capitalizations.
Market volatility: Similar to any equity investment, multi-cap funds are susceptible to market fluctuations. Although diversification aids in reducing risk, short-term volatility remains a consideration.
Investment horizon: These funds are ideally suited for investors with a long-term investment horizon (typically five years or more) to navigate through market fluctuations and potentially capitalize on their growth opportunities.
Unlike funds that concentrate on a particular market cap, multi-cap funds help mitigate concentration risk. This ensures that your wealth is not solely dependent on the performance of a few companies. This is also why multi-cap funds can be a valuable addition to the portfolios of investors looking to accumulate substantial gains from the market over a decade or longer.
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