For investors seeking a balanced approach to investing with both risk and returns, multi-cap mutual funds are certainly an ideal choice. They invest in companies across different market capitalisations.
This includes small-cap companies that offer high-growth potential along with increased risk, mid-cap companies that strike a balance between risk and return, and large cap companies that are known for their stability and top market position.
So, you can benefit from every aspect of investing, from high growth potential to more reliable returns with multi-cap mutual funds. However, creating the right portfolio is the key and here is how you can do it.
Assess your Risk Tolerance Level
Consider factors like your age, income, future financial goals and commitments to analyse your risk tolerance. This assessment will help you decide the investment strategy. For example, if you are a young professional, you can align a higher investment in high-risk stocks with small-cap or mid-cap companies that offer higher growth potential.
On the other hand, if you are middle-aged, married and have two children, it is best to invest in large-cap funds that offer greater stability and lower risk.
Set your Financial Goals
Before creating a portfolio with multi-cap mutual funds, it is important to identify your financial goals. Ask yourself why you want to invest in these funds. Is it for your child’s education, your own higher education abroad or retirement planning?
This helps identify the right multi-cap mutual fund option and the investment horizon.
Compare the Multi-Cap Mutual Fund Options
Several mutual fund companies offer a wide range of multi-cap mutual funds. You can consider the following aspects while selecting an option.
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Investment Strategy and Diversification
Although these funds are invested across various market capitalisations, the investment strategy and level of diversification must be assessed. Make sure it has exposure to different sectors and industries that align with your risk profile.
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Reliability
Evaluate the company’s performance track record and customer support system to ensure a reliable investment experience. Also, assess the experience and expertise of their fund managers in managing mutual fund investments.
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Expense Ratio
This refers to the percentage of your investment that is charged annually for fund administration and management. Opt for multi-cap mutual funds that have a lower expense ratio to maximise your returns.
Decide on a Long-Term Investment Horizon
If you want to benefit from the multi-cap mutual funds, decide on a long-term investment tenure. This will help your investment portfolio go through the various market cycles and benefit from the power of compounding.
Review your Investment at Regular intervals
The investment landscape can change over time. For example, market trends may shift towards mid-cap companies, your risk tolerance might decrease due to increased financial responsibilities, or you might decide to increase your investment amount. To align with these changes, keep reviewing your investments regularly and make the necessary adjustments.
Wrapping Up
Multi-cap mutual funds offer a well-balanced approach to managing risk and return in mutual fund investments. However, to make the best out of them, align your investment with your specific needs and diversify your portfolio accordingly.
Before building your portfolio, be sure to assess your risk profile and identify future goals. This thoughtful approach will help you create a goal-oriented investment plan for long-term wealth creation.
