When people think of investing in an equity mutual fund, the first thing that comes to their mind is which would be the right fund to invest in. Whether they should invest in a large cap, mid-cap or small cap fund depends on various factors such as the individual’s requirement, investment plan and investment objective. While large cap fund ensures stability in the portfolio, mid-cap and small cap funds provide exceptionally high returns. Among all these, there is one more category called multi-cap growth fund that stands out from the rest owing to its flexibility and diversified nature. This fund invests in different companies across the market capitalization and takes advantage of different opportunities. Sure it sounds lucrative provided you are able to choose the best multi-cap growth fund. So, here are a few handy tips to pick the best fund for you.
Analyze your investment objective: First thing first. Analyze your investment objective before indulging in a multi-cap growth mutual fund. Whether you are looking for a long-term investment return or you are looking for a short-term or quick return should drive your investment decision. So, it goes without saying that figuring out your investment objective is the most vital part of making a wise investment decision.
Evaluate the past performances: Like for any other investment, it is important to evaluate the past performance of the fund manager when investing in a multi-cap growth mutual fund. Find out the consistency of the returns he has been generating and how fair has he been in terms of identifying the right market cap and meeting the financial objectives of the investors. You may also consider evaluating the category average returns which will help you to identify how good or bad is your investment against its peers.
Risk v/s return: Figure out your risk taking capacity and check whether the fund you choose fits into your risk profile, investment plans and goals. In case, you are not comfortable with the volatile nature of multi-cap funds, then perhaps this is not the right type of fund to add to your investment portfolio.
Exposure: Decide whether your portfolio is fit for a long-term or short-term investment. To be on a safer side, buy large-cap funds first and then add multi-cap to your portfolio. In case, you are a conservative investor, then a portfolio comprised of large-cap and multi-cap funds without an exposure to the mid or small cap fund will suffice your purpose. For a more enterprising investor, a portfolio comprised of 30-40 percent of the large-cap fund, 30-40 percent of multi-cap fund and the rest with mid-cap and small-cap fund is quite suitable.