Mutual funds are a financial investment tool for gaining profit. It so happens, that trust takes the responsibility of collecting money from various people who are interested in investing, then this amount is further used to buy bonds, securities, equities, and other financial instruments. The profit from this investment is equally divided amongst the investors.
Now, mutual funds are of various types such s diversified funds, Flexi cap funds, and multi-cap funds. These are all equity mutual funds where the fund is invested in various market capitalization like large-cap, mid-cap, and small-cap stocks.
Earlier, before the announcement of Flexi-Cap mutual funds in the market, there was only the multi-cap mutual fund which only invested in all the listed stocks at BSE and NSE. This was a good investment for those investors whose aim is to invest for 2 to 3 years. These investors look for long term profit and high returns from their investment and multi-cap mutual fund catered to this need of the investors perfectly well.
Moreover, according to SEBI multi-cap mutual funds are only concerned with investment in large-cap stocks. To remove the biased investment scenario, SEBI came up with the category of Flexi Cap mutual fund where the fund manager retains the decision for allocation to market capitalization.
Effects of Investing in Multi-Cap Mutual Fund :-
- The multi-cap mutual funds are allowed for 25% minimum allocation in large-caps, mid-caps, and small-cap stocks. The risk factor in investing in a multi-cap mutual fund is moderate and does not incur high risk.
- In the multi-cap mutual fund, the existence of a standardized yardstick or benchmark index is present, which helps in understanding performances.
- Moreover, in multi-cap mutual funds, the investors aim at high returns and the return is pitted against the index which is the benchmark.
- Multi cap mutual funds facilitate investment in varied types of market capitalization in f small, medium & large forms by investors in retail and wholesale.
- Investors in multi-cap have the advantage of investing in diverse portfolios and hence makes a perfect investment asset for new investors as there is lower risk in the market.
- The nature of investment where there is a low risk naturally attracts investors who are otherwise reluctant to invest in mutual funds. It helps build a considerable proportion of investment class.
- Investment in a multi-cap mutual fund also enables an investor to do long-term financial planning.
Therefore, it’s a prudent move for a new investor to invest in a multi-cap mutual fund as there are numerous benefits including diversification of portfolio and lower market risks. Some of the market leaders in multi-cap mutual funds are Axis Multicap Fund, UTI Equity Fund, Quant Active Fund, and TATA Retirement Progressive Savings Fund, etc. Investment in this kind of mutual fund also brings a sense of stability and is for a long term process which makes it highly recommended for not only new investors but also people who have retired.