As per the capital market regulator’s new definition, released in September 2020, a Multi-cap Fund is required to allocate a minimum of 25% of its assets each in large-cap, mid-cap, and small-cap stocks. Earlier Multi-cap Funds continued to hold a large-cap biased portfolio, but with this definition investments into the respective market capitalisation segments were regulated for this sub-category of equity mutual fund. Many fund houses converted their existing Multi-cap Funds into Flexi-cap Funds to maintain the flexibility in allocation while investing across the market cap segments. This left space in the product basket of fund houses to introduce a Multi-cap Fund.
Thus, following the new guidelines, fund houses such as Aditya Birla Sun Life Mutual Fund, Kotak Mutual Fund, IDFC Mutual Fund, and very recently Axis Mutual Fund came up with Multi cap Funds. Joining the bandwagon HDFC Mutual Fund too has launched HDFC Multi Cap Fund, an open-ended equity scheme investing across large-cap, mid-cap and small-cap stocks.
On the launch of this fund, Mr Gopal Agarwal Fund Manager at HDFC AMC said, “We have observed that different market cap segments perform differently at different points in time. HDFC Multi Cap Fund is a one-stop solution for investors looking for exposure to different market caps, through one fund in a disciplined manner, to achieve better risk-adjusted returns. We believe that long-term fundamentals, effective diversification and stock selection are critical in a constantly changing environment. Going forward, the structural growth drivers and supportive external environment bode well for India’s secular growth story. Further, robust earnings growth outlook and favourable macroeconomic environment bode well for equities over medium to long term.”
Table 1: Details of HDFC Multi Cap Fund
|An open-ended equity scheme investing across large-cap, mid-cap & small cap-stocks.
|To generate long term capital appreciation by investing in equity and equity-related securities of large-cap, mid-cap and small-cap companies. There is no assurance that the investment objective of the Scheme will be realized.
|Rs 5,000/- and in multiples of Re 1 thereafter. Additional purchase Rs 1,000/- and in multiples of Re 1 thereafter.
|Rs 10/- per unit
|– Mr Gopal Agarwal
– Mr Sankalp Baid
|Nifty 500 MULTICAP 50:25:25 (TRI)
|November 23, 2021
|December 07, 2021
(Source: Scheme Information Document)
The investment strategy for HDFC Multi Cap Fund will be as follows:
HDFC Multi Cap Fund aims to generate long term capital appreciation by investing predominantly in equity and equity-related securities of large-cap, mid-cap and small-cap companies.
The stock selection approach will be a mix of top-down and bottom-up. The scheme will maintain a minimum exposure of 25% of its total assets in each market cap category viz. Large-cap, Mid-cap & Small-cap. The scheme may also invest up to 25% of its total assets in debt and money market securities, and up to 20% in units of mutual funds.
The scheme may also take derivative positions up to 50% of the maximum permissible allocation, based on the opportunities available mainly for hedging and portfolio rebalancing. Further, it may also invest in the hybrid securities viz. units of REITs and InvITs for diversification and subject to necessary stipulations by SEBI from time to time. Subject to the Regulations and the applicable guidelines, the scheme may also engage in Stock Lending activities.
HDFC Multi Cap Fund intends to remain diversified across key sectors and economic variables. The allocation will be managed actively with an emphasis on identifying the best ideas within each market cap segment.
As regards the investment in debt securities are concerned, it will be guided by credit quality, liquidity, interest rates and their outlook.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for HDFC Multi Cap Fund
|Indicative Allocation (% of net assets)
|Equity and Equity related instruments of Large, Mid and Small-cap companies of which:
|Medium to High
|Large Cap^ companies
|Mid Cap^ companies
|Small Cap^ companies
|Low to Medium
|Units of REITs and INVITs
|Medium to High
|Debt securities*, money market instruments and Fixed Income Derivatives
|Low to Medium
|Units of Mutual Fund@
|Low to High
(Source: Scheme Information Document)
* Including securitised debt, other structured obligations (SO), credit enhanced debt (CE), debt instruments with special features such as subordination to equity (absorbs losses before equity capital) and /or convertible to equity upon trigger of a prespecified event for loss absorption (also referred to as “perpetual debt instruments”)
@ The Scheme may invest in the schemes of Mutual Funds in accordance with the applicable extant SEBI (Mutual Funds) Regulations as amended from time to time.
^Investment universe of “Large Cap”, “Mid Cap” and “Small Cap” shall comprise companies as defined by SEBI from time to time.
HDFC Multi Cap Fund’s portfolio shall comprise allocation to large-cap stocks between 25% and 50% of total assets. This flexibility of investing in large-cap stocks shall aid in managing volatility and also aid reasonable liquidity.
The mid-cap and small-cap portion, on the other hand, would help generate better alpha with high-growth opportunities. Within its investment universe, the scheme will aim to maintain a well-diversified equity portfolio comprising of stocks across various sectors of the economy. This helps in managing concentration risk and sector-specific risks. In addition, any investments in debt securities, as mentioned earlier, would be undertaken after assessing the associated credit risk, interest rate risk and liquidity risk.
Who will manage HDFC Multi Cap Fund?
Mr Gopal Agarwal and Mr Sankalp Baid will be the dedicated fund managers for this scheme.
Mr Gopal Agarwal will be managing the equity portion of the portfolio. He holds a B.E. and MBM degree and has a collective experience of 16 years in Fund Management, of which 2 years are in Equity Research. Before HDFC AMC, he was associated with DSP Investment Managers Private Limited as Senior Fund Manager and Head-Macro strategy, TATA Asset Management Company Limited as CIO-Equity and Mirae Asset Global Investments (India) Pvt. Ltd. as CIO-Equity and Chief Strategist.
Mr Sankalp Baid is the dedicated fund manager for overseas investments in the portfolio. He is a Chartered Accountant, holds a PG Diploma in Business Management from XLRI, Jamshedpur and B.Com Hons. Degree (University of Calcutta). Before joining HDFC AMC, he was a part of BNP Paribas Bank as the Assistant Vice President, India Ratings & Research as the Associate Director, Future First Info Services as an Analyst, and BSR & Co (part of KPMG) as an Assurance Senior.
At HDFC Mutual Fund, Mr Baid manages overseas investments in HDFC Arbitrage Fund, HDFC Banking and PSU Debt Fund , HDFC Balanced Advantage Fund , HDFC Banking and Financial Services Fund , HDFC Capital Builder Value Fund , HDFC Children’s Gift Fund, HDFC Corporate Bond Fund, HDFC Credit Risk Debt Fund, HDFC Dynamic Debt Fund, HDFC Dividend Yield Fund, HDFC Equity Opportunities Fund – Series 2, HDFC Equity Fund, HDFC Equity Savings Fund, HDFC Fixed Maturity Plan – Series 27, 30, 40, 42 to 44, HDFC Floating Rate Debt Fund, HDFC Focused 30 Fund, HDFC Gilt Fund, HDFC Large and Mid Cap Fund, HDFC Housing Opportunities Fund – Series I, HDFC Hybrid Debt Fund, HDFC Hybrid Equity Fund, HDFC Income Fund, HDFC Infrastructure Fund, HDFC Liquid Fund, HDFC Long Term Advantage Fund ,HDFC Low Duration Fund ,HDFC Medium Term Debt Fund , HDFC Mid – Cap Opportunities Fund , HDFC Money Market Fund , HDFC Multi-Asset Fund , HDFC Retirement Savings Fund , HDFC Short Term Debt Fund , HDFC Small Cap Fund , HDFC TaxSaver , HDFC Top 100 Fund and HDFC Ultra Short Term Fund.
Fund Outlook – HDFC Multi Cap Fund
Following a multi-cap approach, HDFC Multi Cap Fund would potentially offer the stability of large caps and the high-growth potential of mid and small-cap stocks. While the scheme offers investors diversification by investing across key sectors and economic variables, the fortune of the fund will be closely linked with how well the fund managers identify wealth-creating opportunities across the market cap segments.
Due to the emergence of the ‘Omicron’ a new variant (of the coronavirus) classified as ‘variant of concern’ and ‘high-risk’ by the WHO; the market volatility has intensified of late. If localised lockdowns or restrictions are once again imposed by the governments to avoid the spread of the Omicron variant, it may once again weigh down on global economic growth and corporate earnings. For now, the clear direction for the equity market from the current elevated levels is unknown. All this may pose a challenge for portfolio construction activity. The mid-cap and small-cap picks, in particular, may be prone to higher volatility in the short-to-medium term.
It is important to keep an investment horizon of at least 5 to 7 years and have the stomach for very-high risk if you consider investing in HDFC Multi Cap Fund. Moreover, ensure that your investment objective is well-aligned with the fund.
This article first appeared on PersonalFN here