Before taking a leap to top 5 best multi cap funds to invest in 2019 for long term, let us discuss the basics of multi cap funds in India.
What is meant by Multi Cap Funds?
Multi cap funds have their name taken from the two words multiple and capital. It means funds which invest in different companies of varied capitalization. For e.g., my friend Arjun wanted to invest Rs.10, 000 in various small, mid and large cap funds in India. This would involve him undertaking an extraordinary amount of research to decide which would be the best fund. He would also need to narrow down the various fund categories, and try to go through the different portfolios they hold. This could end up being cumbersome for the common investor.
Various fund houses have introduced multi cap funds – funds which invest in small, large and mid-cap securities. This would mean Arjun only had to invest in one fund now, instead of 3/4/5. The search for the best multi cap fund of 2019 has been going on for a while. I will mention below the best multi cap funds in 2019 and why I have arrived upon that decision.
Multi Cap vs Large Cap Funds
Let us first understand the difference between a multi cap fund and a large cap fund. A large cap fund would primarily invest in securities that have large market capitalization, for e.g. – Reliance, Infosys etc. A multicap fund, would invest in different capitalizations at the same time. This means the fund could invest in a large cap like ITC, while also having exposure to mid and small cap securities such as Vakrangee, or Rana Sugars. This gives the fund a holistic approach to diversification.
Multi Cap vs Balanced Funds
These funds are predominantly equity instruments, while balanced funds have both equity and debt. Multi cap funds diversify by investing in equity of large, mid and small companies. Balanced cap funds majorly survive due to the fact that they safeguard your capital through debt allocations.
SIP or Lump sum in Multi Cap Funds?
The next question is whether to invest in best multi cap funds through lump sum or SIP ? SIP or a Systematic Investment Plan is an extremely good alternative to average costs. By investing in a disciplined manner every month, the increase or decrease in the unit rates could be averaged out over time.You could also choose a lump sum if you have cash in hand and you are an aggressive investor.
Pros and Cons of investing in a Multi Cap Fund
As discussed earlier, the major pro about a multi cap fund is the ability to invest in various companies at the same time through a single fund. This saves a lot of time, and diversifies the risk of the investor.
The major con would be the unusual risk this brings to the investor. While an investor in a large cap fund would only have exposure to large cap stocks, it is not the case in multi cap funds. An investor in multi cap funds would also have exposure to small cap and mid cap risk. This could adversely affect the portfolio of the investor in a volatile market.
Should I invest in a Multi Cap fund?
This is a very significant question that has only one answer – How far are your goals? Invest according to your goals. If your goals are far off, it makes sense to invest more in a multi cap fund. If your goals are nearby, like in the range of 3-5 years, it is better to invest in liquid funds.
How Multi Cap Mutual Funds are Taxed?
Multi cap funds are taxed on basis of LTCG and STCG. That is, any gains from the investment less than one year would be taxed at 15%(STCG). Any investment over one year would be taxed as long term capital gain or loss. Long term capital gain or loss is exempt from tax up to Rs 1 Lakh in gains. Over and above 1 L, it is taxable at a flat rate of 10%(LTCG). This is to induce investments into the equities in India.
Top 5 Best Multi Cap Funds to Invest in 2019– For Long Term in India
Here is a list of top 5 best multi cap funds to invest in 2019 for long term in India:
- Mirae Asset India Equity
- Kotak Standard Multicap
- Aditya Birla Sun Life Equity Fund
- Axis Focused 25 Fund
- Parag Parikh Long Term Equity Fund
Also Read : Best Investment Options in India 2019
In the below table, the split between giant, large, mid and small cap stocks are shown along with an analysis of their 1 year, 3 years and 5 year returns.
It is evident from the above that funds which have more investments in the giant or large cap categories generally have lower volatility.
Direct plans in all the scheme discussed above were launched in 2013 and has average annual returns varying between -2% and 20.5% depending on the year and the market. This is consistent with the idea that multicap funds are generally very volatile and move a lot with movement in the market. Aditya Birla Sun Life Equity fund has a negative -2% return for the last one year. It majorly owns stocks in the financial space with maximum ownership in HDFC and ICICI Bank.
In comparison, the Mirae Asset India Equity fund has average annual returns varying between 4.5% and 20.5% depending on the year and the market. The AUM under difference schemes also varies. While Kotak has an AUM of 21719 Crores, Parag Parikh has only 1453 Crores.
To conclude, invest in best multi cap funds only if your goals are far away. If your goals are less than 5 years away, it is always better to invest in FDs/Debt Funds.
What is your view on Best Multi Cap Funds to Invest in 2019– For Long Term in India. Do you have any of the above multi cap fund in your portfolio?