POSTED BY September 28, 2011 6:10 pm COMMENTS (5)ON
A Multi Cap fund is a mutual fund that has a mandate for investing in any market cap/sector.It is the most flexible type of mutual fund as the fund manager does not need to restrict its investment to a certain kind of stocks or for certain ratio in that kind of stocks.It is treated as riskier as it may have more mid or mid and small cap exposure than the investor would like.This exposure can prove to be fruitful in a bull market and if the fund manager is not active and good enough this can be fatal to the fund.A Multi Cap fund like any type of fund has a place of its own.But is there any need for it to have in a portfolio?
I ask this in a market that has been sufferring and is rumoured to suffer further due to various international and I am not aware but may be few domestic factors.So you may think that I am asking beacause muti-cap funds are sufferring more.But this not the case.
Suppose a person has one large cap,one large & mid cap and one small & mid cap fund is it not diversification enough?What another multi-cap fund will do extra in that portfolio?
A multi cap fund which has a good track record and almost everybody will tell me is the best in its category is HDFC Equity.Nothing against it.But if you analyse more carefully it has almost total overlap with another diversified equity fund in large & mid cap category.Guess what the name of that fund is HDFC Top 200!Almost everybody has it.No wonder the performance of the two funds are similar.
You may complain that these are from the same AMC and nobody is supposed to have more than one fund from the same AMC.Right.But overlaping is not the only concern.Barring few(one I already mentioned) most of the multi cap funds don’t have a better show than the diversified funds in recent years.I don’t want to bore you with statistics here, please go to valueresearch or moneysights and see for yourself.Even the less risky large cap funds have better returns.
I am not questioning if one should invest in multi cap funds or not.One can and should invest according to his/her goals and risk taking ability.My question, is there any need for Multi Cap fund in one’s portfolio just for diversification’s sake?
Post what you think.I welcome debates and discussions.
Thanks in advance.