00:00 (upbeat music)
00:02 - Hello viewers and investors.
00:08 Welcome to another episode
00:09 of Outlook Money G Investment Made Easy webinar series.
00:12 This episode is spearheaded by LIC Mutual Fund.
00:15 Today's topic of discussion is Multi-Cap Fund,
00:17 what is it and how should investor approach it?
00:20 A multi-cap fund as the name suggests,
00:22 invest in stocks across market capitalization.
00:26 You can say this is a three in one fund
00:28 as it gives you a flavor of all market capitalization
00:31 in one single fund.
00:32 Today we get to know in details from our expert.
00:35 I'm Kundan Kishore, Deputy Editor Outlook Money,
00:38 your host for this session.
00:40 And I am delighted to welcome Mr. Amit Nadhikar,
00:42 Senior Fund Manager Equity, LIC Mutual Fund,
00:45 who will throw some light on the strategy
00:47 one should adopt for investing in multi-cap funds.
00:50 Mr. Nadhikar has over 15 years of experience
00:53 in portfolio management and equity research.
00:55 Prior to joining LIC Mutual Fund,
00:57 he was with Alchemy Capital.
00:59 Welcome Mr. Nadhikar,
01:00 it is a pleasure to have you here for our show.
01:02 - Thank you, thank you for having me.
01:04 - Yes, so let me begin with the question that's straight away.
01:09 Could you please explain to our viewer
01:10 what is multi-cap fund and how it works?
01:13 - Sure.
01:15 See, as the name suggests,
01:16 multi-cap funds are the funds where
01:19 there's a very good representation of
01:23 stocks across the market caps, right?
01:26 So minimum 75% of the investment needs to be done
01:30 in equities and equity-related investments
01:33 at any one point of time, right?
01:36 Beyond that, there's a mandate that minimum 25%
01:39 must be invested into large cap,
01:42 minimum 25% must be invested into mid-cap,
01:45 and minimum 25% must be invested into small caps.
01:49 The balance 25% is at the discretion of the fund manager
01:53 where he sees the best risk-related rewards.
01:56 I think that's where he would invest
01:57 into balance for you.
01:58 - Okay.
02:01 So, but how do you manage the remaining 25% in this fund, sir?
02:04 - Like I said, it would be a fundamental different approach
02:11 and across this market cap spectrum,
02:14 wherever the fund manager finds the best opportunities,
02:17 I think he will add those opportunities to his portfolio.
02:21 - Okay.
02:23 But sir, the question is,
02:25 why should one consider investing in multi-cap funds?
02:28 And there are separate categories
02:30 that are available in the market,
02:31 like pure large cap fund, pure mid-cap funds,
02:33 pure small cap funds.
02:35 So why should one consider investing in multi-cap funds?
02:40 - Sure.
02:41 So see, different categories provide you
02:46 a different profile of risk and returns.
02:50 So suppose you plot on a graph,
02:53 let's say on an X-axis you plot returns,
02:57 on a Y-axis you plot risk, right?
03:00 And then you'll get a dot about every fund.
03:05 So let's say large cap provide least of the risk,
03:09 but returns could be relatively less, right?
03:13 If you move on to the next category,
03:14 which is flexi-cap fund, right?
03:16 I think the returns are superior to large cap funds,
03:19 but also there is a higher risk
03:21 because they would invest across the market cap, right?
03:26 Now, if you move to the next category,
03:28 and which is where we are,
03:30 the category we are discussing, multi-cap, right?
03:34 Now the multi-caps have a minimum 25% in each category.
03:39 So basically 25% in mid-cap and 25% small cap
03:42 would add a higher 50% allocation beyond large cap, right?
03:48 So that category has a higher risk,
03:50 but also higher return potential.
03:53 And beyond that, if you move to mid-cap and small cap,
03:57 the risk return increases in that proportion, right?
04:01 So I'm hoping I'm able to give you a fair understanding
04:04 about why one should look at the different categories.
04:07 It depends upon either the risk return profile
04:10 one is looking at.
04:11 - Right.
04:13 Sir, you rightly mentioned about the flexi-cap,
04:18 but there is confusion among investors
04:20 about the flexi-cap and multi-cap funds
04:22 because investors invest in flexi-cap,
04:24 they also invest in multi-cap stocks.
04:28 And similarly, multi-cap fund also invests multi-cap,
04:31 I mean, across the market caps.
04:33 But is there any catch or is there any major difference
04:36 between flexi-cap and multi-cap fund?
04:38 - Sure, I think that's a very good question, right?
04:42 Theoretically, what you're saying is correct, right?
04:46 But if you look at the reality, right?
04:50 What happens is that the flexi-cap has a benchmark,
04:54 which is NSE 500.
04:55 And NSE 500, if you look at the composition
04:59 of various market caps,
05:01 then large caps dominate around 75% plus, right?
05:06 The mid-cap exposure in the benchmark NSE 500
05:10 is around, I think, 89%.
05:12 This would vary depending upon
05:14 as the market cap movement happens, right?
05:16 And the small cap would be 89%, right?
05:19 So theoretically, yes, you are right.
05:24 But in reality, the weight of large cap
05:28 is as high as 75%.
05:30 And the weight, collective weight of mid-cap and small cap
05:34 is as low as probably 20, 25%, correct?
05:38 If you now compare that with a multi-cap,
05:41 which by definition or by mandate,
05:44 minimum 25% exposure must be maintained
05:47 to the small and mid-cap,
05:49 gives you far better opportunity to generate
05:54 probably potentially higher return,
05:56 of course, at a higher risk, right?
05:58 So that's a distinction between
05:59 the multi-cap and flexi-cap.
06:02 - Okay.
06:04 So what investors would consider
06:06 investing in multi-cap fund?
06:08 I mean, the person should be,
06:09 the investor should be,
06:11 who is very aggressive on taking risk
06:14 or moderate risk appetite investor
06:15 can also invest in multi-cap fund.
06:17 - So like we discussed,
06:21 the multi-cap category has a different risk-return profile.
06:25 Correct?
06:26 So an investor who believes,
06:29 it's very difficult to time the market
06:31 and I don't want to time it.
06:33 When would a large cap would do better
06:36 versus let's say a small cap or mid-cap
06:39 or when would mid-cap would do better
06:41 versus small cap and large cap,
06:43 would have a minimum 25% exposure
06:46 in each of these categories, right?
06:48 So there's a great diversification
06:51 which he will also achieve through this, right?
06:53 So on one hand,
06:54 the large caps gives you stability to the portfolio.
06:57 On the other hand,
06:58 small caps gives an opportunity
07:00 to generate extra alpha, right?
07:03 So an investor who's mature has a long-term horizon
07:08 of let's say at least three to five years, right?
07:11 And looking at better risk-return profile
07:14 should definitely consider multi-cap as a category.
07:17 - Okay.
07:19 But sir, when we talk about the alpha
07:22 and especially being the multi-cap fund,
07:24 the universe is very big
07:25 because you have to deal with all around 3,500 stocks, right?
07:30 - Correct.
07:32 - So in that case,
07:34 the stock picking acumen of the fund manager is very crucial.
07:38 So how do you see this?
07:40 - Absolutely right, right?
07:43 Bang on.
07:44 You know, the SEBI has defined the top 100 as a large cap
07:48 and next 150 as the mid-caps.
07:51 So beyond first 250, it's ocean out there, right?
07:55 And it's a fund manager's ability
07:58 to select right stocks
08:00 will determine how good a fund would do
08:04 or how good the alpha is able to generate.
08:07 I think, and that's where, you know,
08:10 or any funds investment philosophy process
08:15 or discipline approach would come to play.
08:18 And like you said,
08:21 then the fund manager's ability to select the right stock,
08:26 you know, construct a right portfolio
08:29 and manage the risk well
08:30 will determine whether he can consistently deliver
08:33 you know, good results.
08:35 - Okay.
08:36 So what are the factors one should consider
08:38 before investing in multi-cap funds?
08:40 - Like I mentioned, you know, first and foremost,
08:45 you should have a, you know, a reasonable time horizon,
08:49 you know, at least three to five years of time horizon.
08:53 Then you should understand, you know,
08:54 the exposure to mid and small cap would be much higher,
08:58 right?
08:59 And with that comes the volatility, right?
09:01 So he should, you know,
09:03 be ready to take that volatility, right?
09:07 So risk return metric,
09:08 he should be very clear about, correct?
09:11 And, you know, once he's, you know,
09:13 sorted out on that, right?
09:15 Then it's, you know, something that,
09:18 I mean, there are many more things probably, you know,
09:20 which, you know, there is not much time to discuss,
09:22 but of course, you know,
09:24 and the philosophy of, you know,
09:26 the fund house, the fund manager and his track record.
09:31 And of course, you know, distinct features,
09:35 which, you know, would be separating, you know,
09:37 one scheme versus another in the same category, right?
09:41 Are some of the things which one should, you know,
09:44 look at before selecting, you know, the multi-cap fund.
09:47 - So what would be your suggestion for the investors now
09:51 in this current volatile market?
09:53 Is it a good time to invest in a multi-cap funds
09:55 or it's a all weather fund?
09:57 - See, like I, you know, certainly mentioned, right?
10:01 Timing market consistently, right?
10:04 Is next to impossible, right?
10:07 And therefore, you know,
10:10 one should not get into market timing.
10:12 And, you know, if you have a right time horizon, right?
10:16 And then, you know,
10:17 the starting point is not so much of relevance
10:21 or a concern, right?
10:22 So we believe, you know, any point of time
10:26 is the right point of time to invest into equities,
10:29 even you have, you know, long-term time horizon, right?
10:32 And at the end of the day, you know,
10:36 you should, you know, stick to your discipline, you know,
10:40 savings or through SIP, right?
10:43 Allocation to the equities and, you know,
10:45 have a right asset allocation done before that.
10:48 And then, you know, market timing is not very,
10:51 you know, important.
10:52 - Great, great insight, sir.
10:55 Great.
10:56 - Thank you so much.
10:58 - So with this, we come to the end of today's episode
11:01 of Investment Made Easy on Multi-Cap Funds.
11:03 Thank you, Mr. Nadekar for joining us today.
11:05 Viewers, we hope you enjoyed our conversation today.
11:07 Please don't forget to share your comments
11:09 and feedback on this episode.
11:10 You can also share your suggestions and questions
11:13 at clator@outlookmoney.com.
11:14 We will be back with our next edition soon.
11:17 Till then, stay safe, stay invested,
11:18 and keep following Outlook Money.
11:20 Thank you.
11:21 - Mutual fund investments are subject to market risks.
11:23 Read all scheme-related documents carefully.
11:26 [MUSIC PLAYING]
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