Weekly Musings – NFO Pick (Mirae Asset Multi-Cap Fund)

19 Jun 2023 , 12:46 PM

In this issue, we dwell upon the forthcoming NFO of Multi Asset Multi-Cap Fund. As the name suggests, the multi-cap fund invests in a cross section of capitalization segments and spreads its funds across large caps, mid-caps, and small cap stocks. 

How Multi-Caps differ from Flexi Caps?

It is easy to get confused between multi-caps and flexi-cap funds since their basic asset structuring and benchmarking is the same. The difference likes in the discretion given to the fund manager. In a flexi cap fund, the fund manager has total discretion to decided on the mix of large caps, mid-caps, and small caps. Technically, the flexi cap fund can even have 70% in large caps or mid-caps or small caps, if that is the view of the investment committed. In comparison, the multi-cap fund is more structured in its portfolio mix. The first condition is that, at least, 75% of the total corpus must be invested in equities. In addition, there is also the requirement the multi-cap fund must have minimum exposure of 25% to large caps, 25% to mid-caps and 25% to small caps at any point of time. Once that condition is met, the fund manager has discretion on the balance 25%. Let us now turn to the key features of the Mirae Asset Multi-Cap Fund NFO.

Key features of the Mirae Asset Multi-Cap Fund NFO

The Mirae Asset Multi-Cap Fund NFO  will invest the corpus across large caps, mid-caps, and small caps, while maintaining the minimum 25% exposure to each category. The scheme intends to provide long-term capital appreciation from a portfolio investing predominantly in Indian equity and equity related securities of large cap, mid cap, and small cap companies. Normally, funds adopt a bottom-up approach towards mid-caps and small caps while the selection of large caps is a mix of top-down and bottom-up.

• The Mirae Asset Multi-Cap Fund NFO will invest across large-caps, mid-caps, and small caps, keeping the basic 25% exposure in place. For the purpose of the fund definition, it will adhere to the AMFI definition. The top 100 by market cap will be large caps, 101 to 250 will be mid-caps and all stocks below that will classify as small caps.

   

• The Mirae Asset Multi-Cap Fund NFO has to mandatorily maintain 75% exposure to equity with a 25% each minimum distribution across large caps, mid-caps, and small caps. The balance 25% can be either deployed in debt and other assets or it can be invested in one of the capitalization categories at the discretion of the fund manager.

   

• In terms of risk return matrix, the fund would classify as a high risk fund. That is because of its predominant exposure to equities. There is also the stock selection and discretion risk since stock selection can be quite cumbersome for smaller stocks. In the short to medium term, the NAV of the fund can also be highly volatile.

   

• In terms of suitability, the Mirae Asset Multi-Cap Fund NFO would be suited to investors with an investment horizon of 5 years and above. It is normally over a longer time frame that equities, as an asst class, tend to outperform other asset classes. That is what the empirical data suggests, but a longer term perspective is a must for smaller stocks.

   

• In terms of taxation, being an equity fund, all the tax rules applicable to equities would apply here too. In the case of the Mirae Asset Multi-Cap Fund NFO, dividends will be fully taxed in the hands of the investor and will attract TDS by the fund at the extant rates. If the fund is held for less than 1 year, it would classify as short term capital gains (STCG) and will be taxed at the rate of 15%. If units are held for more than 1 year, it will classify as long term capital gains (LTCG) and will be taxed at a flat rate of 10%, after the base LTCG exemption limit of Rs1 lakh per annum. Benefits of indexation will not be available in this case.

Multi-cap funds are a high risk means of participating in equity markets. However, in the Indian context, mid-caps and small caps have historically generated alpha for investors.

How have multi-cap fund performed in India?

Here is a quick look at the best performing multi-cap funds over different time periods. We have taken 5 years as the benchmark for ranking as that is a reasonably long term.

Fund Name	1 Yr	2 Yr	3 Yr	5 Yr	10 Yr
Quant Active Fund Growth Option Direct Plan	27.027	14.777	40.115	22.404	22.499
Quant Active Fund Growth	25.359	13.054	37.835	21.045	21.688
Mahindra Manulife Multi Cap Fund Direct Plan Growth	28.909	14.443	33.060	18.277	–
Nippon India Multi Cap Fund – Direct Plan – Growth	40.257	23.491	39.697	16.288	17.333
Mahindra Manulife Multi Cap Fund Regular Plan Growth	26.645	12.411	30.719	16.177	–
Nippon India Multi Cap Fund – Growth	39.235	22.616	38.732	15.492	16.487
Baroda BNP Paribas Multi Cap Fund Direct Growth Option	29.435	15.031	31.283	14.817	15.668
ICICI Prudential Multicap Fund Direct Plan Growth	31.265	13.893	30.146	13.931	17.045
Baroda BNP Paribas Multi Cap Fund Regular Growth	28.061	13.895	30.074	13.784	14.679
Sundaram Multi Cap Fund-Direct Plan – Option	24.180	13.454	29.682	13.158	17.766
Invesco India Multicap Fund Direct Plan Growth Option	28.724	10.587	28.295	12.895	19.391
ICICI Prudential Multicap Fund Growth	30.127	12.879	28.968	12.878	15.994
Sundaram Multi Cap Fund Growth	22.758	12.270	28.446	12.095	16.807
Invesco India Multicap Fund Growth	27.022	9.101	26.575	11.351	17.668
Category Average	29.654	13.125	30.811	15.328	17.752
S&P BSE 500 India TR INR	24.903	10.743	27.402	13.094	15.082

Data Source: Morningstar India

As can be seen from the above table, multi-cap funds as an asset class have done well over longer time frames. If you look at a 5 year time frame, the average CAGR returns given by multi-cap funds in India is 15.33%, which is very impressive. The multi-cap average CAGR returns over a 5-year period outperforms the benchmark BSE-500 index by over 200 basis points, so there is genuine alpha that has been created. 

If you look at the top-6 funds that did better than the category average, you find them giving strong returns even across other time frames. However, a 5 year time frame would be ideal to look at. Multi-cap funds have total assets under management (AUM) of Rs74,017 crore while they have around 42.13 lakh folios. It must be said here that the category was much larger before many of the multi-cap funds shifted to becoming flexi-cap funds.

Glance at the Mirae Asset Multi-Cap Fund NFO

Here are some details of the Mirae Asset Multi-Cap Fund NFO you must know to decide on investing in the fund.

1. The fund opened for subscription on July 26, 2023 and the NFO subscription will close on August 09, 2023. 

    

2. The Mirae Asset Multi-Cap Fund NFO offers an opportunity to investors to diversify across capitalization classes with a more structured allocation approach.

    

3. Entry loads do not exist in India, but if the fund is redeemed within 365 days from the date of allotment, it will attract an exit load of 1%. There will be no exit load after that.

    

4. The minimum investment in the Mirae Asset Multi-Cap Fund NFO would be Rs5,000 in the NFO and in multiples thereafter. 

    

5. The fund offers Regular and Direct plans for the investors. In addition, investors can either choose the Growth option or the IDCW (income distribution cum capital withdrawal) option.

    

6. How will the fund be benchmarked? It will be benchmarked Nifty 500 Mult-Cap Index with 50:25:25 ratio-based TRI. Here TRI refers to the Total Returns Index.

The Mirae Asset Multi-Cap Fund NFO is an opportunity to benefit from a structured equity portfolio of large caps, mid-caps, and small caps over the long term.