Fund Cap Selection in portfolio

POSTED BY Ramesh ON October 25, 2010 12:13 pm COMMENTS (2)

Assume there are 4 funds in a portfolio, how to choose how many large cap, mid cap, small cap, multi cap should be in the portfolio.

Does multi cap means combination of large, mid and small cap?

2 replies on this article “Fund Cap Selection in portfolio”

  1. Santosh Navlani says:

    @Ramesh,

    Why not construct a well diversified portfolio yourself of “best & time-tested” funds rather than have binding conditions?

    You will most often notice that depending on market conditions, fund managers keep switching between market caps & sectors. And unfortunately, as an investor, one DOESN’T have any control over “construct of scheme’s portfolio” at a particular time. The fund manager defines a broad objective & mandate and sticks to it.

    Hope you have noticed Relinace Regular Savings Equity fund’s objective – “The scheme aims to generate consistent returns by actively investing in equity or equity related securities. It will invest atleast 80 per cent of its assets in equity and equity related securities. Upto 20 per cent of its assets will be invested in debt and money market instruments with an average maturity of 5 to10 years.” (source – valueresearchonline.com)

    There is no way you can come to know its a so-called “multi-cap portfolio”. It keeps shuffling its investments based on market situations. And so is every other fund.

    So its better, you define your asset allocation & decide your approximate exposure to mid & large cap stocks based on your risk tolerance. Once you do that, just form a well-diversified portfolio of preferably 3-5 funds between Balanced, Large & Mid-cap focussed funds with amounts that help you achieve your asset allocation & preferred market-cap exposure.

    The best way to make better investments is “keep it simple”.

    Hope this helps. Happy investing 🙂

    P.S. I have Reliance Regular Savings Equity fund in my portfolio for giving me exposure to Large-cap stocks while IDFC Premier Equity Plan A gives me exposure to mid-cap & HDFC Prudence to give me requisite Debt part as well as some remaining required mid-cap.

    Santosh

  2. rakesh says:

    Ramesh,

    Depends on the risk you can take. For a medium risk person you can opt for 2 large cap, 1 multi-cap and 1 mid-cap fund.

    Rakesh

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