Multi Cap funds are mandated to invest at least 25% of their corpus, each in small caps, mid-caps and large caps. The industry classifies the largest 100 companies as large caps, the next 150 companies by size as mid-caps and the rest of the 4500+ odd companies in the listed space as small caps.
While there are schemes dedicated to each of the market cap categories, a multi cap fund aims to take a balanced exposure in all the three market cap categories. In the past, it has been difficult to predict which asset category will outperform. In a few years, large caps have performed better, and in others small or mid-caps have done the honors. A multi cap fund aims to take a disciplined minimum exposure in each market cap category such that investors benefit irrespective of which category outperforms in which year.
India is slated to grow at a faster clip compared to other large global economies for decades to come. It is estimated that the average age of an Indian is close to 29 years. India is likely to add about 15 crore people to its working age population in the coming 20 years, while there could be steady depletion of about 12 crore population in working age in countries like China.
The demographic dividend, the demographic disposition and the regular deregulation make India’s long term structural growth story quite sustainable as well as exciting. Retail investors have done well to shift from traditional low return savings avenues to potentially higher and more tax efficient equity mutual fund investment routes. The steady and significant increase in the monthly SIP reflects greater acceptance and penetration of MF schemes into the Indian masses.
As per the latest numbers, a large cap company in India has a market cap of almost higher than 1 lakh crore. Large cap companies offer stability to a portfolio. Mid cap companies typically range between 33K crore to 99 lakh crores. Mid cap companies offer higher growth prospects and established business models. Small caps, lower than 33 thousand crore in size, provide a vast choice of companies to the fund manager, allowing exposure in multiple industries and emerging sectors. A disciplined and diversified exposure in all the 3 market cap categories through a Multi Cap fund provides an investor one stop investment solution which combines stability and growth prospects in a single fund. Indian markets have compounded close to 13-14% annualized for the last 20 odd years, and mutual fund investors who remained invested have been able to comfortably beat inflation and increase their real purchasing power as well.
It has been observed that equity prices at index levels tend to grow at a similar rate that of the nominal GDP growth rate over long periods of time. An ideal way to benefit from the structural long term growth story of India is to invest through multi cap funds, which invest in large, mid and small cap companies in a balanced and disciplined manner.
(The author Sandeep Bagla is CEO, TRUST Mutual Funds. Views are own)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
