Mutual Funds Day 19: MultiCap Fund
Over the next few chapters, we will discuss the various classifications of Equity funds. Mutual funds have three main categories
- Equity Funds
- Debt Funds
- Hybrid Funds
Equity funds are the most popular as the returns offered by them outbid the debt and hybrid categories. Since the opportunities to get higher returns are available, it normally comes with a higher exposure to risk. Mutual funds are normally sold as SIPs to the masses, so people are not that bothered to invest in equity funds.
As a person who wishes to learn the top to bottom of mutual funds, you should spend adequate time learning the debt and hybrid fund categories. Only then the knowledge will be holistic.
When you buy an equity mutual fund, the AMC will use your money to buy the shares of a few companies. These shares will be held with the AMCs even though you are a part owner. There is nothing to worry about as this is a standard procedure and the NAVs & units allotted to you will match the amount invested.
When the price of the component shares goes up, the total valuation of the assets held with the AMC will go up and this will reflect a higher NAV value. Similarly, when the value of component shares falls, the NAV will fall.
A Mutual Fund that invests in Equity but maintains a ratio of investments among Large Cap, Mid Cap, and Small Cap is MultiCap Fund.
- The top 100 companies sorted in descending order of Market Capitalization in India form the Large-Cap.
- The next 150 companies are Mid-Cap (101 to 250).
- All other companies are Small-Cap (251 onwards).
Although the classification is perfectly defined, there could be minor modifications to the MCAP due to changes in stock prices, valuations etc.
A MultiCap has to follow the below allocation ratio
- A minimum of 25% of all assets has to be from Large-Cap space.
- A minimum of 25% of all assets has to be from Mid-Cap space.
- A minimum of 25% of all assets has to be from Small-Cap space.
This means 75% of all assets have to be uniformly spread between Large, Mid, and Small-cap companies. The remaining 25% can be allocated to other instruments, a portion can be held as cash also.
Examples of a few MultiCap funds
https://viswaram.com/mutual-funds-day-20-largecap-fund-ba9e40d3ff5c
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