The best way to create long-term wealth while minimizing investment risk is by investing in mutual funds. A lot of investors make the grave mistake of treating mutual funds like stocks. They think that it is easy to buy low and sell high just like stocks but that’s not the case with mutual fund investments. Investors need to have a long term investment horizon and be patient with their investments. There are a plethora of mutual fund schemes to choose from. However, those who are new to mutual fund investments may find it a bit overwhelming to decide which scheme to invest in.
For long term wealth creation, equity funds are a good option. Investors with a high risk appetite may consider investing in multi cap funds.
What are Multi-cap Mutual Funds?
A multi cap fund is a diversified equity scheme predominantly investing in equity and equity related instruments of publicly listed companies spread across market capitalizations. A multi cap fund is a one-of-a-kind mutual fund scheme investing in large cap, mid cap as well as small cap stocks. Of its total assets, a multi cap fund invests a minimum of 25% each in stocks of small cap, mid cap, and large cap companies.
Why is it the right time to invest in Multi-cap Funds?
Multi cap funds offer the best of all three asset classes – Sometimes investors are skeptical about where they must invest their money. They do not know whether they should invest in an equity fund that has exposure to large cap, mid cap, or small cap. Large funds offer stable returns, but they cannot offer high returns like small cap funds. On the other hand, small caps and mid caps may provide higher returns, but are riskier as compared to large cap funds. By investing in a multi cap fund, investors get exposure to all three market caps. This way, they are able to benefit from all three market caps.
Invest in a diversified portfolio – When you invest in other equity funds like large cap, mid cap, or small cap, you only get maximum exposure to a particular market cap. That’s not the case with multi cap funds as they invest across market capitalizations. The fund manager does not have to worry about the company’s market cap when auditing stocks. They can evaluate stocks with growth potential without worrying about the market cap of the company.
Long term wealth creation – Multi cap funds are equity oriented schemes that need time to show their true potential. One cannot expect multi-cap funds to provide returns over the short term. Investors can target their life’s long term financial goals like retirement planning, planning for their daughter’s wedding, etc. by keeping a long term investment horizon.
Invest either via SIP or lump-sum – There are multiple ways to invest in multi-cap funds. Investors can either make a one time lump-sum investment right at the beginning of the investment cycle, or they can opt for the Systematic Investment Plan. Making a lump-sum investment may require investors to time the market as it only makes sense to invest a hefty sum when the markets are down but expected to normalize soon. However, if you do not want to time the market then you can consider the option of SIP. Systematic Investment Plan (SIP) is a simple and hassle-free way to invest small, fixed sums at periodic intervals in multi cap funds.
Now is the best time to invest in multi-cap funds as this will give you a chance to create wealth in the next few years. But make sure that you invest via SIP for the long run in a disciplined manner.