Smart investments
Mutual funds (MFs) are fantastic ways of investing your hard-earned money, especially because MFs are suitable for all types of investors including beginners and professionals. MF is popular because it is formed from a pool of money from several investors who have common objectives. MFs are managed by Asset Management Company (AMC) who employ professional finance managers. Multi-cap equity funds and Focused equity funds are mutual funds that deal in equity. Let’s understand what exactly is Multi-cap equity fund & Focused equity fund, their features, and differences.
What are Multi-cap equity funds
Multi-cap equity funds are spread across diversified equity funds of different market capitalizations. You have an option to select from large-cap, mid-cap, and small-cap funds. Multi-cap funds are a combination of all three. Did you know that until September 2020, multi-cap equity funds dealt mostly in large caps? However, the Securities and Exchange Board (SEBI) now requires these funds to be diversified.
Why invest?
If you are a moderate risk-taker, multi-cap funds are for you. Investing in multi-cap funds will allow you to spread risks across companies of different sizes. However, it is best to invest in these funds for a longer tenure to earn better returns. Also, these funds are known to offer higher returns than the most large-cap funds and are hence suitable for a larger population.
What are Focused equity funds
Just as the name suggests, focused equity funds deal in only certain limited stocks. As per SEBI, these funds can invest in 20-30 stocks. Ideally, regular mutual funds can diversify the investment portfolio across 50 to 100 stocks. The focus funds aim to allocate funds to some of the best stocks to ensure higher returns. Unlike multi-cap funds, focused funds can invest in companies of different market capitalizations.
Why invest?
You can expect higher returns as compared to MFs that are highly diversified. Because the AMCs that invest in focused equity funds often hand-pick the best-performing stocks. You can pick these funds if you are looking for a higher return but also remember that you need a high-risk appetite to invest in them.
Some key differences at a glance
- Since multi-cap are highly diversified the risks is spread across different stock and hence less risky than the focused equity funds
- Multi-cap funds invest at least 25% in large-cap, 25% in mid-cap, 25% in small-cap. Focused funds are not restricted to market capitalizations.
- Focused-cap funds are limited to only certain sectors but Multi-cap funds can be diversified across several sectors.
- If you are a beginner, multi-cap is best for you as it is far safer than focused funds. However, if you are an experienced investor then go for focused funds.
- Give at least 5 years to focused funds to perform but expect a longer time to see results. Incase of multi-cap funds, you can expect steady returns for 7 years.
So, we hope this helps you make smart investment choices that suit your investment goal to make an impressive portfolio. If you need further assistance, feel free to contact us.
