Multi-cap funds offer equity-like returns with lower drawdowns
Multi-cap funds provide equity-like returns with reduced volatility and drawdowns. These funds delivered strong annualised returns over a twenty-one-year period. They offer a balanced approach across large, mid, and small-cap stocks. Wealth managers suggest multi-caps simplify investment decisions for retail investors. This strategy helps manage investor behaviour during market stress periods.
Mumbai: For those seeking equity-like returns with reduced market fluctuations, multi-cap funds may be a suitable option. According to a study by WhiteOak Capital, the Nifty 500 Multicap 50:25:25 TRI delivered an annualized return of 15.53% between 2005 and 2026, which outpaced large-cap returns by 1.54% and was close to small-cap and mid-cap returns.
Multi-cap funds typically hold a mix of large-, mid-, and small-cap stocks, potentially offering lower volatility and drawdowns than individual market segments. The annual volatility for multi-caps stood at 23.4%, lower than small-caps at 28.7% and mid-caps at 26%. Drawdowns were also comparatively lower for multi-caps at 66.8%, compared to 75.6% for small-caps and 72.9% for mid-caps.
Large-caps had a lower drawdown of 61.1%. Wealth managers argue that multi-caps can help reduce investor volatility and remove the burden of market-cap timing decisions. These funds are also tax-efficient and can capture a significant portion of return potential across market segments while minimizing risk. They can also assist in managing investor behavior during market downturns, as multi-caps typically exhibit lower drawdowns, according to Vishal Dhawan, founder and CEO of Plan Ahead Wealth Advisors.
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