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07 OCTOBER, 2019
Historically, mutual funds have been the preferred choice for investors who want to get the benefits of the stock market without investing in stocks directly. However, the recent slowdown in the economy, global trade wars, and weak corporate earnings have kept the Indian stock market under pressure for the last few months.
This raises the following question among many investors.
Should I invest in Large-cap, Mid-Cap, or Multi-cap mutual funds?
Mutual fund investments are long-term investments. The short-term volatility and ups and downs of the market need not affect your long-term investment strategy. However, it's important to understand various types of mutual funds and their investment objective and style, to ensure it suits your investment objective.
Broad Classification of Equity Mutual Funds:
Mutual funds can be broadly classified into Large-cap, Mid-cap, Small-cap, and Multi-cap funds. Large-cap funds invest predominantly in large-cap companies while small-cap and mid-cap funds allocate it to small-cap and mid-cap companies. Multi-cap funds have no such restrictions and can be moved between various market-cap companies as per the decision of the fund-manager.
How to Choose Equity Funds?
Since large-cap companies are considered to have strong balance sheets, their stocks are known to offer stable returns. Small and mid-cap companies’ stocks, however, offer higher growth potential but are more prone to volatility and risk.
Thus, Mid-cap and Small-cap funds are generally suited for investors with a high-risk appetite, whereas investors with relatively low-risk tolerance usually prefer Large-cap funds.
This is where multi-cap funds come into the picture.
What are Multi-cap Funds?
As the name implies, these are equity-based mutual funds that invest in a large-cap, mid-cap, and small-cap companies. These funds are known to offer many advantages to the investor and are preferred, especially during a bear market. Some of its key benefits are:
Choosing the Right Type of Equity Mutual Fund
While large-cap funds suit investors with a relatively low-risk appetite, small and mid-cap funds are known to be more aggressive in nature.
A healthy portfolio is one that is well-diversified across various market-capitalisations. It's important to choose the right type of mutual fund based on your risk-profile and end-goal.
With multi-cap funds, you can build a diversified portfolio without having to invest in different market-cap funds individually. Hence, investors with limited experience and with an aggressive style of investing may consider multi-cap funds.
Click here to start your investment journey today.
Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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