Kotak Multicap fund NFO review: Should you invest in it?

Kotak Mutual Fund is rolling out a new multi-cap scheme. It already runs the largest flexicap fund. The new scheme will invest in companies across market capitalization.

The multi-cap segment has opened up for mutual fund players after regulator SEBI redefined the category.

The multicap fund will invest 25 percent each in mid-cap, small-cap and large-cap stocks, as per SEBI’s new definition. The remaining 25 percent will be deployed as per the discretion of the fund manager.

“Our model will throw up signals on when an overweight in large-cap, mid-cap or small-cap is warranted and for how long this position should be maintained. When that happens, the overall scheme could get tilted in favour of large-cap, mid-cap or small-cap stocks,” says Harsha Upadhyaya, chief investment officer-Kotak MF.

Also, if the fund manager sees attractive investment opportunities in sectors that largely belong to mid-cap and small-cap segments, the fund’s allocation towards mid and small-caps may increase. “For example, several of the home building companies are mid and small-cap firms,” Upadhyaya points out.

Otherwise, the fund is likely to be invested close to its benchmark index – with 50 percent in large-caps, and 25 percent each in mid and small-caps.

Kotak Flexicap Fund had converted itself into flexi-cap scheme, which was newly created category last year. At present, it’s the largest scheme in its category, with assets of over Rs 37,000 crore.

Financial planners say investors that are yet to build their investment portfolio, and want to keep it limited to four-five schemes, can think of adding the Kotak Multicap Fund.

“An investor who wants to have exposure to mid-caps, small-caps and large-caps, without buying those schemes separately, can look at a multicap fund,” says Amol Joshi, founder of Plan Rupee Investment Services.

Says Rupesh Nagda, founder and managing director of Family First Capital, “With this category, the fund manager is required to have at least 25 percent allocation to large-caps, which can reduce volatility. For those yet to invest in mid and small-cap segments, this can be a relatively less volatile option than separate investments in mid and small-cap schemes.”

The multicap category could be slightly more volatile than flexicap and large-cap funds.

“This category will be in the slightly ‘high-risk high-return’ segment within equity funds, as there will be fixed exposure to mid-cap and small-cap stocks,” Joshi says.

Some financial advisors prefer flexicap funds for the flexibility they give to the fund manager. “With the flexicap category, the fund manager has no minimum limits to stick to when investing in mid or small-caps. If she thinks, the mid-cap segment is overvalued, the fund manager can even completely reduce the mid-cap position of the fund,” points out Vishal Dhawan, founder and chief financial advisor of Plan Ahead Wealth Advisors.

Upadhyaya says the multicap fund is meant for those investors that have long-term investment horizon, as over such time frames, the volatility tends to even out.

Kotak mutual fund’s good track record in equity categories lends comfort for investors wanting to get into this new scheme. If you are a fairly new mutual fund investor and want to keep your investments limited to just three-four schemes, you can add a multicap fund to your portfolio. But remember, multicap fund is an entirely new category and is yet to build a track-record. Till such time, it’s better to stick to flexi-cap schemes, along with small and mid-cap funds.