The stable and strong performance of multicap funds in the Indian mutual fund industry over the past few years has rapidly increased their popularity among investors. The latest data available on the AMFI website shows that several multicap funds have delivered excellent long-term returns, with Nippon India Multicap Fund, Mahindra Manulife Multicap Fund, and Quant Multicap Fund leading the way.

While the riskometer of these funds shows "high," the balanced investment across all three categories allows these funds to take advantage of market movements and help maintain a stable portfolio.

What is a multicap fund and why is it special?

A multicap fund is an equity mutual fund that mandates a minimum 25% share in all three categories: large-cap, midcap, and small-cap. The biggest advantage of this structure is that investors get a combination of stability, moderate growth, and rapid growth in a single fund.

A large-cap portfolio strengthens the portfolio, while mid-caps offer opportunities for consistent growth, and small-caps enhance the potential for faster returns. Whether the market rises, falls, or remains stable, multi-cap funds, due to their diversification, offer advantages in all situations. This balance makes them an excellent choice for investors seeking good returns without taking on too much risk.

Strong Performance of the Top Three Multi-Cap Funds in AMFI Data
Data from the AMFI website shows that some multi-cap funds have delivered impressive returns over five years. Nippon India Multi-Cap Fund has generated an annualized return of approximately 28.59%, the highest in its category. Its NAV has reached over ₹335, and its AUM is also quite large, indicating that investor confidence in this fund is steadily increasing.

Mahindra Manulife Multi-Cap Fund has also delivered a five-year return of 25.39%, a result of stable and disciplined management. Although its AUM is low, the fund's investment strategy has consistently delivered strong performance.

Quant Multicap Fund is known for its aggressive and active investment strategy. Its five-year return is close to 23.49%, and its NAV is around ₹686. This fund rapidly restructures its portfolio during market ups and downs, which is why its performance often outperforms the category average.

The Power of Diversification
The biggest strength of multicap funds is their broad diversification. When the market declines, the large-cap portfolio supports the portfolio. Meanwhile, during stable or moderately bullish periods, mid-cap companies drive returns.

When the market rallies, small-caps perform well and contribute significantly to the portfolio. This balance protects investors from excessive volatility and maintains a steady flow throughout the investment journey.

Multicap funds are also a convenient solution for investors who worry about how much to invest in which category. Fund managers make periodic adjustments based on market conditions, ensuring investors receive the right mix of risk and returns.

Arjun's Story
Arjun, a working professional, found it difficult to take the time to analyze the market. He wanted to ensure his money was both safe and growing. He was unsure whether to invest in large-cap or small-cap funds. At that point, his financial advisor recommended a multicap fund.

Arjun, based on this advice, started investing in a multicap fund. Over the following years, the market crashed and rebounded several times, but Arjun's portfolio experienced significant fluctuations. During downturns, large-cap funds kept the portfolio afloat, while during upturns, the mid-cap and small-cap components generated significant profits. Arjun didn't have to worry about market timing, and his portfolio remained consistently balanced.

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