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Best multi cap mutual funds to invest in 2020

As per Sebi mandate, multi cap mutual fund schemes have the freedom to invest across market capitalisations and sectors.

ET Online|
Updated: Jan 14, 2020, 11.47 AM IST
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Here are our recommended multi cap mutual fund schemes for you this new year. We are continuing with the most schemes that were part of our 2019 list, but dropping one scheme: ICICI Prudential Multicap Fund, as it failed to keep pace with the market during upturns for sometime now. However, to its credit, the scheme managed to protect the downside very well in a falling market.

For the newcomers, as per Sebi mandate, multi cap mutual fund schemes have the freedom to invest across market capitalisations and sectors, based on the view of the fund manager. These schemes are typically recommended to equity investors with a moderate risk appetite.

Since these schemes can invest across market capitalisations and sectors, the fund manager has the flexibility to switch to sectors and stocks belonging to any market capitalisations, based on the market conditions or the prospects of the sectors. That means if you are ready to take moderate risk, you do not need to look beyond multi cap schemes to bet on various market caps and sectors. In short, if you are betting on scheme, it should be a multi cap scheme.

However, do not overlook your risk-taking ability. Since multi cap schemes may also invest in mid or small cap stocks, they are riskier than large cap schemes that invest predominantly in very large companies. However, because of the exposure to mid and small cap stocks, multi cap mutual fund schemes may also offer higher returns.

In short, if you are an investor with a moderate risk profile and looking to invest for at least five to seven years to meet long-term financial goals, you should consider investing mostly in multi cap mutual fund schemes. If you want to diversify and reduce the overall risk on the portfolio, you may also invest in large cap schemes or aggressive hybrid schemes.

Best large cap mutual fund schemes to invest in 2020

If you want to invest in a multi cap scheme, but do not know how to choose a good scheme, here are some handpicked schemes for you. Invest in these schemes with an investment horizon of five to seven years to achieve your long-term financial goals like your retirement and children's higher education.

We would also update the list every month so that you would know how the scheme is performing.

Best multi cap schemes to invest in 2020
Motilal Oswal Multicap 35 Fund
SBI Magnum Multicap Fund
Kotak Standard Multicap Fund
Aditya Birla Sun Life Equity Fund

Here is our methodology:
ET.com Mutual Funds has employed the following parameters for shortlisting the equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i) When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii) When H is less than 0.5, the series is said to be mean reverting.
iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme =
[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore

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