When you think about investing your money, you may consider investing in multi-cap mutual funds. This is a special fund that falls in the equity mutual fund category that invests your money in distinct kinds of companies.
How do multi-cap funds work?
Every now and then, people like you and me put our money together into something called an equity mutual fund. These funds then take our money and buy stocks of companies with it. There are rules for distinct kinds of funds. For instance, large-cap mutual funds can just invest in the top 100 companies while small-cap mutual funds must invest in smaller companies ranked below 250.
But here comes the interesting part – multi-cap funds do not have strict rules. They are allowed to invest in small, big, and mid-sized companies. How much they should invest in every type is based on the fund manager and market scenario. When things go well, the manager may invest more in smaller companies and in the case of uncertainty, may put more funds in bigger companies.
The advantages of multi-cap funds
Exposure to all sectors
These funds do not focus on just one type of company. They invest in various sectors and sizes, so you get to benefit from everything that is happening in the economy.
Multi-cap funds spread out their investments across different companies and sectors. This makes things safer because if one sector or instrument in the market is not doing well, others might be.
Adjusting according to market scenario
The good thing about multi-cap funds is that they can change how they invest. If small companies are overvalued, the fund managers can invest in large-cap companies to take a defensive approach.
Who should invest in multi-cap funds?
- If you are not sure whether you want to invest in big, stable companies or smaller ones with more growth potential, multi-cap funds offer a middle ground.
- If you are new to investing, multi-cap funds can be a good start because they lower the risks.
- If you want to benefit from smaller companies but do not want to add a lot of risk, multi-cap funds can help with that.
- If you are planning for the long term, like saving for your children’s education or retirement, these funds can help. Just ensure to remain patient for the long term i.e., five years and above.
What must you consider before investing?
Remember that when you invest in multi-caps, there exists a chance of witnessing market volatility. Be patient and avoid making any abrupt decisions in such cases.
Investment goals and horizon
Be well-versed with want you want to attain with your investments in multi-cap and be ready to stay invested for at least a span of five years.
These funds come with a cost called an expense ratio. This is a charge to cover your mutual fund scheme’s administrative, operating, and other costs.
Multi-cap funds are equity investment instruments that stand out. They invest in distinct kinds of companies, endowing flexibility, safety, and an opportunity to benefit from distinct parts of the economy. In the case you are new, planning to remain invested for the long term, or seeking balance, such funds may be a prudent option.