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Multicap Mutual Funds - Flexible Funds

For a compact yet all-weather portfolio, multi-cap funds are a superior alternative to large-caps

 

These are funds where the fund manager can move investments between large-cap, mid-cap and small-cap funds as required by his perception of how the equity markets are going to behave.

 

Sometimes, it explicitly states that one should not invest in a large-cap fund because it limits the fund manager to just one kind of investment, thus placing artificial limits on the portfolio. This is actually the same argument that is valid with regard to any specialised fund, whether sectoral or thematic, or indeed, capitalisation based. The underlying principle is that one should never invest in anything but a completely diversified fund. As the market twists and turns, your fund manager must have the freedom to move to invest in any sector, theme or size of company.

When you invest in a mutual fund, you are paying a fund manager to make investing decisions for you. It's his or her job to figure what type of investment is best at the moment. Whether its large-cap or small-caps or infrastructure or technology--or all of them--which are the right areas to invest in, that's part of the service that you are supposed to get when you invest in a mutual fund. However, when you get tempted by a fund that's supposed to limit itself to a particular subset of the market, then you are pre-empting the fund manager and making an investment choice yourself. Without fail,, the time period over which a specific type of investment does well is a subset of the time period over which the entire market does well. This may not appear to be the case over a short timeframe but in the long run it is always true. At almost every specific point of time, it looks foolish to have invested in a completely diversified funds rather than a limited mandate one. However, it's only when you take a long period into account, you realise that the identity of the type of fund that is doing well keeps changing in unpredictable ways.

 

It comes as a surprise to many investors to hear large-cap equity funds being described as having a limited mandate, which is something we normally say about sectoral funds. However, that's the way it works. There are prolonged periods in the equity markets during which large cap investments do worse (or less well) than mid-cap or small-cap investments. The last few weeks have been such a phase and this has simply drawn attention to this fact. A fund that is limited to large cap investments can fall far behind during these high-growth phases of the markets. It can also miss out, by design, many good investments.

 

The apparent contradiction arises from the difference between a portfolio and a single fund. Till a few years ago, there weren't too many flexible, multi-cap funds from which an investor could choose. The default way to achieve a balance was to invest separately in good large-cap, mid-cap and small-cap funds. However, things have changed now. Investors have a good choice of multi-cap funds with long track records. Staying invested in a flexible way no longer requires investors to invest in a combination of different types of funds.

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Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

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