Reasons why your portfolio needs multi-cap funds

Most financial experts believe a portfolio is not complete without a multi-cap fund. Multi-cap mutual funds are ideal for investors who are looking for diversification and decent growth in their investments. A multi-cap fund is a diversified mutual fund that invests in stocks of companies of different market capitalisations – small-cap, mid-cap, and large-cap. This gives the fund the potential to generate significant returns in different market conditions.

Here are four more reasons why experts recommend investors allocate a portion of their portfolio to multi-cap funds.

1. Helps to diversify your portfolio

With a multi-cap fund, an investor gets exposure to the broader market via a single fund. Since these funds offer the natural benefit of diversification, your portfolio is not reliant on the performance of just one sector or one market capitalisation. Moreover, you don’t have to select small-cap, mid-cap, and large-cap companies individually, as such a fund gives exposure to them all.

2. Professional management

Multi-cap funds are managed by professional money managers who have extensive experience analysing different types of investments. They use their knowledge and expertise to make decisions about where to allocate your money to achieve the best possible return on your mutual fund investment. They can make buy and sell decisions based on their analysis of the market and the underlying businesses.

The management team also monitors the performance of the multi-cap fund and makes adjustments to the portfolio as needed. Thus, multi-cap funds can be beneficial for investors who can’t decide between large-cap, mid-cap, and small-cap stocks and thus need active management.

3. May generate better risk-adjusted returns

Multi-cap funds have the potential to deliver better risk-adjusted returns compared to single-cap funds. Since fund managers adjust the investments in response to changing market conditions, your multi-cap portfolio won’t significantly fluctuate if any particular stock or industry underperforms.

For example, when the small-cap or mid-cap market valuations get expensive, the fund manager can switch to large-cap stocks and vice versa. Furthermore, when the best investment opportunities are available, the fund manager can decide to buy those by maintaining a mix of small, mid, and large-cap stocks without bias.

4. Highly liquid

Most multi-cap funds are highly liquid, which means you can sell them at any time. This is important if you need to access your money quickly or if you want to avoid losses in a down market.

So, what kind of investors should invest in multi-cap funds?

• Ideal for young and first-time investors in mutual funds who have a higher risk appetite but cannot decide which market caps to invest in.
• Investors who want diversification and are looking for long-term growth potential can invest in multi-cap funds.
• Investors who want the low volatility of large-capfunds and the higher growth potential of small and mid-cap funds.
• Investors who want to invest regularly in small amounts through SystematicInvestment Plans (SIPs) can also consider multi-cap funds.

These are some of the most important reasons why multi-cap funds should be included in every investor’s portfolio. By having a healthy portion of your portfolio in multi-cap funds, you can ensure that you have diversified well and are prepared for any market scenario.