LIC MF Multi Cap Fund: Aims to Benefit from a Focused Allocation Across Market Caps

Oct 12, 2022

Listen to LIC MF Multi Cap Fund: Aims to Benefit from a Focused Allocation Across Market Caps

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Freshly minted multi-cap funds are gaining traction, and the new look of multi-cap funds differs vastly from what it was a few years ago. While Multi-cap funds practiced a free-wheeling approach to market cap allocation earlier, they are now subject to stringent allocation norms. Multi-cap funds are mandated to invest at least 25% each in the large-cap, mid-cap, and small-cap segments. Around the time the new norms kicked in, many multi-cap schemes shifted to the Flexi-cap category.

The multi-cap funds seek to minimise the market risks and ensure growth by diversifying their portfolio holdings to each segment. Hence, these funds could resort to quick portfolio adjustments to be proportional to an emerging situation. Thus, compared to capitalisation-weighted funds like large-cap, mid-cap, and small-cap, multi-cap funds may carry a lower risk.

Multi-cap funds take enough presence in large caps to ensure a degree of stability in performance. At the same time, the mid and small-cap exposure can be a potentially rewarding proposition. Long-term investors aiming to build wealth to meet their long-term financial goals with a potentially better risk-return trade-off may consider investing in Multi-cap funds that offer consolidation through a single solution.

LIC Mutual Fund has launched LIC MF Multi Cap Fund; it is an open-ended equity scheme investing across large-cap, mid-cap and small-cap stocks. The scheme endeavours to participate in good businesses across market segments. The stock selection & portfolio allocation happens through a mix of quantitative & qualitative approaches. Multi-level checks, including MVC (Macro Based Valuation Check), ensure disciplined investing.

Table 1: Details for LIC MF Multi Cap Fund

Type An open-ended equity scheme investing across large-cap, mid-cap and small-cap stocks Category Multi-cap Fund
Investment Objective The investment objective of the scheme is to generate long-term capital appreciation by investing in a diversified portfolio of equity & equity-related instruments across large-cap, mid-cap and small cap stocks. However, there is no assurance that the investment objective of the scheme will be realised.
Min. Investment Rs 5,000/- and in multiples of Re 1 thereafter. Additional Purchase Rs 500/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
SIP/SWP/STP Available
  • Direct
  • Regular
  • Growth
  • IDCW (Income Distribution cum Capital Withdrawal)
Entry Load Not Applicable Exit Load
  • 12% of the units allotted shall be redeemed or switched out without any exit load on or before the completion of 12 months from the date of allotment of units.
  • 1% on remaining units if redeemed or switched out on or before completion of 12 months from the date of allotment of units.
  • Nil, if redeemed or switched out after completion of 12 months from the date of allotment of units.
Fund Manager Mr Yogesh Patil Benchmark Index NIFTY 500 Multicap 50:25:25 TRI
Issue Opens: October 06, 2022 Issue Closes: October 20, 2022
(Source: Scheme Information Document)

The investment strategy for LIC MF Multi Cap Fund will be as follows:

LIC MF Multi Cap Fund will invest across all market capitalisation categories. The scheme will invest a minimum of 25% each in large, mid and Small Cap stocks, with the balance of 25% providing flexibility to the fund manager to invest in market capitalisation categories depending on opportunities available at the time. The scheme endeavours to provide long-term capital appreciation by investing in equity and equity-related instruments.

LIC MF Multi Cap Fund: Aims to Benefit from a Focused Allocation Across Market Caps
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The scheme would adopt a top-down and bottom-up approach to investing and will endeavour to be diversified across various sectors and/or market capitalisation categories. The scheme would focus on identifying companies with long-term growth potential, disciplined capital allocation, and sound management pedigree.

The scheme follows an in-house investment framework called a macro-based valuation check (MVC). The model captures macro & micro variables to determine Market valuation levels; this adds another layer of the check while monitoring the portfolio. Any approach, i.e., Top-down or Bottom-up, may not work in isolation - both need to be seen in conjunction with macro and micro - environments to arrive at desired results.

To reduce risk, the fund will maintain a well-diversified portfolio. The investment manager will seek capital appreciation by investing in equity and equity-related instruments of the companies where the company's valuation does not fully reflect the company's fundamentals from the investment universe. In order to identify such investment opportunities, the investment manager will conduct analysis of the fundamentals and determine the attractiveness of investment opportunities. Such analysis will typically include, among other things, the financial condition of the company, valuation and liquidity of the securities. The portfolio will endeavour to focus primarily on a buy and hold strategy at most times.

Under normal circumstances, the Asset Allocation will be under:

Table 2: Asset Allocation for LIC MF Multi Cap Fund

Instruments Indicative Allocations (% of Net Assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity related instruments of which: 75 100 High
  • Large Cap Companies
25 50
  • Mid Cap Companies
25 50
  • Small Cap Companies
25 50
Debt Securities and Money Market Instruments (including Triparty Repo) 0 25 Low to Medium
Units issued by REITs and InvITs 0 10 Very High
(Source: Scheme Information Document)

About the benchmark

The NIFTY500 Multicap 50:25:25 index aims to measure the performance of a portfolio of large, mid and small market capitalisation companies with target weights assigned to each size segment. The NIFTY500 Multicap 50:25:25 index includes all companies that are part of the NIFTY 500 index.

While in the NIFTY 500 index, the total weight of each size segment (Large, Mid and Small cap) is based on the total free float market capitalisation of all stocks falling within that size segment, in the NIFTY500 Multicap 50:25:25 index, the total weight of each of these three segments (Large, Mid and Small-cap) is fixed at 50%, 25% and 25% respectively at every quarterly rebalance date.

Who will manage LIC MF Multi Cap Fund?

The designated fund manager for this scheme will be Mr Yogesh Patil. He holds an MBA (Finance) degree from Symbiosis Institute of Business Management, Pune and a from Govt. College BHEL Bhopal. Prior to joining LIC MF Asset Management Ltd. in 2018, he was associated with Canara Robeco Mutual Fund as Senior Fund Manager (Equity) and Sahara Mutual Fund as Research Analyst.

At LIC Mutual Fund, Mr Patil currently manages LIC MF Large & Midcap Fund, LIC MF Large Cap Fund, LIC MF Infrastructure Fund, and LIC MF Balanced Advantage Fund (Equity Portion).

Fund Outlook - LIC MF Multi Cap Fund

LIC MF Multi Cap Fund aims to provide investors with opportunities for long-term growth in capital from a diversified portfolio of equity and equity-related instruments across market capitalisation. The scheme, through its bottom-up stock-picking strategy, seeks to build an optimised high-conviction portfolio.

The scheme provides disciplined diversification and an opportunity to invest in Industry leaders across market caps. The Investable universe is expanding with the inclusion of new-age businesses focussing on niche segments with newer technologies. Thus, the scheme will endeavour to cautiously explore newer businesses with promising future potential at reasonable valuations backed by robust fund management.

The scheme offers investors a one-stop solution with diversification across the market cap, unlike holding on to individual stocks. The scheme will be actively managed with certain restrictions to mid and small-cap allocations. However, do note that the scheme's mandatory exposure to mid-and small-cap stocks can bring in unpredictability to the portfolio as these stocks are more volatile when stock markets correct. Further, the fund manager may choose to allocate more to mid and small-cap stocks after allocating the minimum required allocation to large-cap stocks, which may add to expected volatility.

Additionally, the persistent repercussions of geopolitical tensions, spiralling inflation, and a hike in policy rates to curb demand and control inflation may cause a significant risk to economic growth. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is uncertain. These factors, among others, may impact the top constituents of the Index, and the portfolio may face intensified volatility in the near term.

Thus, the scheme is suitable for refined investors seeking to have an unbiased flavour of market caps. However, mid-cap and small-cap funds may not do well in the near future; you must invest in them only if you have a long horizon of at least 5-7 years to sustain various market phases. Ensure you have a high-risk appetite and that your investment objectives are aligned with the fund.

Therefore, it's prudent for investors to wait until LIC MF Multi Cap Fund has built a strong performance track record and then consider investing in it. Alternatively, if you are a high-risk investor, you may consider investing in existing Multi-cap Funds that hold a proven performance record.

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Warm Regards,
Mitali Dhoke
Research Analyst

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