Multicap funds to ensure diversity

K. ARAVIND

It is generally said that investing in large-cap stocks or shares of large companies is safe. Therefore, financial advisers generally advise mutual fund investors to give large consideration to large-cap funds that prioritize large-cap stocks.

At the same time, high-risk investors need to adjust their portfolio in such a way as to maximize returns. Mutual fund investment ratio adjustments are also subject to change due to high risk willingness. Over the last three years, small- and medium-cap stocks or midcap-smallcap stocks have made significant gains. One factor that often influences investors is recent performance. Therefore, such investors are increasingly interested in funds that invest heavily in small and medium stocks.

At the same time, the risk of midcap-smallcap funds investing in small- and medium-sized stocks is high. Just as midcap-small cap funds offer high returns when such stocks perform well, the decline in such stocks is also strongly reflected in the NAV of these funds. Therefore, multicap funds, which are almost equally important for small-, medium- and large-cap stocks, are ideal for high-risk investors who want small- and medium-sized stocks to dominate their portfolio.

The feature of multicap funds is that they offer the potential to make higher-than-average returns through stocks that perform well in different climates. Small- and medium-sized stocks may not perform well in years when the shares of large companies are performing well. Similarly, small- and medium-sized stocks may have performed better in the years when the performance of large companies was sluggish. Examining the performance of the Large Cap Index and the Mid-Small Cap Index over the last ten years, the Large Cap Index has performed well for one year and the Mid-Small Cap Index for the next year. The advantage of multicap funds investing in both these categories of stocks is that they perform well on any of the large-cap and mid-small-cap indices.

Their performance history shows that midcap-smallcap funds perform better than largecap funds in years when they perform better than midcap-smallcap funds in years when largecap funds perform better.

High-risk investors can invest 50-60% in multicap funds. Remember that any category of funds should choose funds with excellent track record, high asset management and best fund managers.