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This multi-cap fund has survived the worst market cycles and yet delivered the highest returns

by Ozva Admin
  • Since its inception on March 28, 2005, the Nippon India Multi Cap Fund has outperformed most of its peers and the market benchmark Nifty500 with returns of 15.15% CAGR.
  • ₹10,000 invested in the fund every month since inception for 17 years would have grown to ₹89.81 lakh now.
  • During these pandemic years, the fund invested in stressed and disadvantaged sectors that are generally avoided by others.

For the past 17 years, Nippon India Multi Cap Fund has survived the worst of the markets, including the US housing bubble, the global financial crisis, demonetization, the US election of Donald Trump, the Covid-19 outbreak or the war between Russia and Ukraine. The Fund has seen it all and still managed to deliver the highest returns in the multi-cap category.

Since its inception in March 2005, the fund has outperformed most of its peers and the Nifty500 market benchmark with returns of 15.15% CAGR. In fact, Rs 10,000 invested in the fund every month since its inception for 17 years would have risen to Rs 89.81 lakh now.

This multi-cap fund has survived the worst market cycles yet generated the highest returns.

Sailesh Raj Bhan, fund manager at Nippon India Multi Cap Fund, believes in the mantra of buying value with a three-year time horizon. “Our intent is to create that kind of portfolio where you look back three years and find reasonable value in the business today, and feel like growth will accelerate from where we are today,” Bhan said in an interaction with Business Insider India. .

Over the past three years, the fund has delivered exemplary returns of 28.23% CAGR, higher than the 23.60% CAGR of the benchmark Nifty500 index. During these pandemic years, the fund invested in stressed and disadvantaged sectors that are generally avoided by others.

Top 5 yield schemes in the multi-cap space % return in the last year
Nippon India Multi Cap Fund 18.73%
Kotak Industrial Growth 4 15.02%
Quantitative Active Fund 14.05%
Nippon India Capital Builder IV B 14.02%
Sundaram Multiple Tapas 10.59%

(Source: Value Research, Note: Above are all direct plan schemes)

“What has worked for us is our investment in engineering, manufacturing and hotels, which has contributed significantly to the fund. The key idea was to choose sectors that are not trendy and offer disproportionate value. And if you remember, 12 to 18 months ago, people didn’t want to invest in hotels because the narrative was that hotels are not going to come back,” Bhan said.

Cutting to almost two years later, hotels are back in business with a huge increase in travel and tourism, contrary to most expectations. In fact, the hotel company’s shares are among the multibaggerswho has made fortunes for investors.

In April-June 2022, there was a 244% increase in hotel demand in six major cities: Delhi, Bangalore, Chennai, Goa, Hyderabad and Mumbai, according to Hotel Momentum India Report 2022.

Speaking of Nippon India Multi Cap Fund, Dhirendra Kumar, CEO of Value Research in a conversation with Business Insider India, said: “It’s a decent fund, there’s nothing awkward about it. A fund that has survived this long and is not doing poorly in bad markets and is doing well in a bull market, you do the job.”

Holding firm to mid-cap amid industry turnover
In November 2020, SEBI introduced flexible capitalization and differentiated between multi-cap and flexible capitalization because many mutual fund schemes were not true to their label and would predominantly invest outside of their defined spheres.

The differentiation is this: Flexible mutual funds can choose the ratio between large-, mid-, and small-cap investments as they wish. On the other hand, multi-cap funds are mandated to maintain a minimum investment threshold of 25% in each of three fund categories: large, mid, and small caps. The remaining 25% can be invested at the discretion of the fund manager.

This led many funds to move from multi-cap to flexible-cap, freeing them to choose a majority of large-cap stocks and avoid risky investments.

Now the tide is turning again. In the past year, several mutual fund companies have launched multi-cap new fund offerings (NFOs) to round out their portfolios.

“After SEBI’s categorization of flexible capitalization, each multi-cap fund changed its previous multi-cap fund to flexible cap. And now, fund houses are filling the multi-cap space as NFOs get more money from MFs than they otherwise would,” Kumar of Value Research said.

Amidst all this turmoil, Nippon India Multi Cap Fund remained firmly in the multi-cap category. He continued to find value in small caps, constantly looking for companies that were industry leaders and offered an attractive valuation.

“Our ultimate goal is to capture the market with more profitability in the medium term. Now, most investors find it difficult to navigate from large-cap, mid-cap, and small-cap stocks. We intend to choose the type of companies that can go through market cycles, so even in a small cap, we look for a business that has to be one of the top 1 or 2 companies in that sector or category. For example, when we were investing in hotels, the leader was small-cap,” said Bhan.

‘Multi cap is a fund for the whole season’
Bhan says the multi-cap is an all-season fund because of its equal exposure to all three categories — large-cap, mid-cap and small-cap — and the flexibility to invest the rest in the large-cap space overall.

Value Research’s Kumar believes multi-cap funds are a desirable category for investment, as they have the necessary exposure to small and mid-caps. “Everyone thinks that flexi cap does almost the same thing as multi cap, but it really doesn’t. As flex-caps are getting big, they can’t have a significant position in small- and mid-caps,” Kumar said.

“And multiple capitalization, because it is mandatory to have a minimum of 25% in small and mid-caps, gives you real or rather forced diversification. Otherwise, the old multi-caps, which are now called flexible-caps, are now becoming predominantly large-caps as they grow,” Kumar said.

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