Welcome to  PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed Nippon India Multi Cap Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

Nippon India Multi Cap Fund is a Multi Cap Fund that has recorded a strong improvement in its performance by holding an excessively diversified portfolio and staying put on some of its high conviction bets despite disappointment in the short term. It stands strong in terms of risk-adjusted returns.

What is the growth of Rs 10,000 invested in Nippon India Multi Cap Fund five years ago?

Past performance is not an indicator of future returns
Data as of June 11, 2024
(Source: ACE MF, data collated by PersonalFN) 

Nippon India Multi Cap Fund is the erstwhile Reliance Equity Opportunities Fund that was later renamed as Reliance Multi Cap Fund after its categorisation under Multi Cap Funds. Unlike most of its peers that preferred to maintain a large-cap-biased portfolio and later migrated to the Flexi Cap Fund category, Nippon India Multi Cap Fund has always been a true-to-name Multi Cap Fund that holds a well-balanced allocation across market caps. As per SEBI’s updated definition for Multi Cap Funds, Nippon India Multi Cap Fund is mandated to invest a minimum of 25% of its assets in large-cap, mid-cap, and small-cap stocks.

Notably, Nippon India Multi Cap Fund witnessed a lean phase between 2019 and 2020 as its bets in certain segments took time to pay off. However, the fund has gained immensely in the last few years as its high conviction calls in the Banking, Engineering, Retail, Hotels, and PSU segments turned out to be rewarding. The fund has done well and flourished under the supervision of Mr Shailesh Raj Bhan, who aims to identify high-growth potential and fundamentally sound stocks across industries that are available at reasonable valuations. The fund manager resists following market momentum and holds each of his high-conviction stocks for the long term.

Over the past 5 years, Nippon India Multi Cap Fund has delivered returns at a CAGR of nearly 23.4% which is higher than the 21.5% delivered by the broader Nifty 500 – TRI index. An investment of Rs 10,000 in Nippon India Multi Cap Fund five years back would have now more than doubled to Rs 28,624 compared to a valuation of Rs 26,523 for a simultaneous investment in its benchmark. After a bout of underperformance, a broad-based rally in the equity market and the focus on high-growth potential stocks enabled Nippon India Multi Cap Fund to find a place among the top performers in the Multi Cap Fund category.

How has Nippon India Multi Cap Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Nippon India Multi Cap Fund	31,963	39.21	26.62	34.53	19.92	17.69	14.73	0.47
Quant Active Fund	10,204	31.61	19.16	32.00	27.06	22.97	17.54	0.31
Mahindra Manulife Multi Cap Fund	3,670	36.55	19.10	29.54	23.26	20.06	15.95	0.33
ICICI Pru Multicap Fund	12,048	34.26	19.48	26.26	17.43	15.66	13.73	0.35
Baroda BNP Paribas Multi Cap Fund	2,459	31.16	16.30	25.93	19.21	15.82	15.24	0.33
Invesco India Multicap Fund	3,359	31.23	15.76	24.28	17.96	15.83	14.46	0.29
Sundaram Multi Cap Fund	2,567	28.12	14.83	23.76	16.41	15.59	14.54	0.30
Aditya Birla SL Multi-Cap Fund	5,584	28.25	15.27	21.13	—	—	13.50	0.31
ITI Multi-Cap Fund	1,177	38.91	19.10	21.12	18.97	—	14.35	0.26
Nifty 500 – TRI		25.45	14.14	21.19	16.05	15.09	14.18	0.26

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of June 11, 2024
(Source: ACE MF, data collated by PersonalFN)
Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Nippon India Multi Cap Fund has an encouraging long-term performance track record. Notably, the fund’s higher allocation to certain out-of-favour segments resulted in underperformance during CY 2018 to 2020 compared to the benchmark and many of its peers. Nonetheless, Nippon India Multi Cap Fund has delivered noteworthy performance as the market rallied and mid & small caps outperformed since the latter half of 2020.

On a rolling returns basis, in the last 2-year and 3- year periods, Nippon India Multi Cap Fund has clocked a lead of around 12.5% to 13% CAGR over the Nifty 500 – TRI index and about 6-8 percentage points over the category average (Due to the unavailability of rolling returns data for the scheme benchmark Nifty500 Multicap 50:25:25 – TRI index, we have used the Nifty 500 – TRI index for performance comparison). The recent superior growth has improved its long-term performance numbers as well. Over the longer 5-year and 7-year periods, the fund has generated a decent lead of 2.5% to 4% CAGR over the Nifty 500 – TRI index and has outpaced many of its peers.

It has also performed well in terms of risk-adjusted returns. Its standard deviation (14.73%, annualised) is slightly higher than that of Nifty 500 – TRI (14.18%, annualised) though nearly in line with the category average (14.9, annualised). However, Nippon India Multi Cap Fund has compensated its investors well for the level of risk taken as demonstrated by its risk-adjusted returns (Sharpe ratio), wherein it has outpaced the benchmark and the category average by a significant margin.

[Read: Best Multi Cap Funds for 2024 – Top Performing Multi Cap Mutual Funds in India]

What is the investment strategy of Nippon India Multi Cap Fund?

Categorised under Multi Cap Funds, Nippon India Multi Cap Fund is mandated to allocate at least 75% of its assets in equity & equity-related instruments, investing a minimum of 25% each in the large-cap, mid-cap, and small-cap segments. Accordingly, Nippon India Multi Cap Fund holds a well-balanced allocation across market caps. The fund aims to seek both growth and value stocks that are likely to benefit from the growth in the economy, with a special focus on high ROE companies.

It adopts a blend of the ‘top-down’ and ‘bottom-up’ approach to stock selection and takes active sector calls. While picking stocks the fund endeavours to identify opportunities ahead of the market, even though it may result in underperformance in the short term. Nippon India Multi Cap Fund prefers to avoid momentum-driven bets and focuses on high-conviction long-term bets. It emphasises building a portfolio comprising a combination of market leaders, sustainable alpha creators, and emerging/niche themes.

What are the top portfolio holdings in Nippon India Multi Cap Fund?

Holding in (%) as of May 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

Nippon India Multi Cap Fund usually holds around 90-100 stocks in its portfolio. As of May 31, 2024, the fund held a large portfolio of 107 stocks, with the top 10 stocks accounting for around one-third of its assets. Names like HDFC Bank, Linde India, ICICI Bank, EIH, and Reliance Industries currently figure among its top portfolio holdings. Nippon India Multi Cap Fund has a long tail of over 75 stocks having an allocation of less than 1% in each, which together accounted for around 37% of its assets. Notably, many of these small-exposure stocks have been in the portfolio for well over a year now. Though Nippon India Multi Cap Fund usually has a low turnover ratio of around 25-35%, it does not hesitate to churn a portion of the portfolio to benefit from sector/stock-specific opportunities.

In the last two years, Nippon India Multi Cap Fund gained the most from its prominent bets on Linde India, GE T&D India, Vesuvius India, EIH, and The Indian Hotels Company, which turned out to be multi-baggers in the portfolio. The fund has also benefitted from its holdings in L&T, Kennametal India, Triveni Turbine, Trent, ABB India, Siemens, Finolex Cables, ICICI Bank, Mahindra & Mahindra, and Axis Bank among many others.

Sector-wise, though Nippon India Multi Cap Fund’s portfolio is skewed towards cyclicals, it also holds substantial exposure to defensive and sensitive sectors. As of May 31, 2024, Nippon India Multi Cap Fund’s portfolio was biased towards Banking & Finance and Engineering stocks that cumulatively formed about 42.6% of its assets. The fund also held substantial exposure to Power, Consumption, Auto Ancillaries, Hotels, Pharma, Retailing, and Chemicals having allocation in the range of 4-7%. The top 5 sectors in the fund’s portfolio together accounted for around 55% of its assets.

Is Nippon India Multi Cap Fund suitable for my investment goals and risk tolerance?

While Nippon India Multi Cap Fund is not a great bear market performer, its performance during bull phases has been commendable. Its focus on maintaining a balanced allocation in fundamentally sound large-cap, mid-cap, and small-cap stocks helps it perform in line with the broader markets and do well over complete market cycles. Moreover, though the fund’s volatility is slightly higher than the benchmark, it has proven its ability to compensate investors well for the level of risk taken by generating noteworthy risk-adjusted returns.

Nippon India Multi Cap Fund is benchmark agnostic and takes active calls in sectors that are likely to benefit from economic growth. It follows a combination of the ‘top-down’ and ‘bottom-up’ approach to pick high-conviction stocks and stays invested in them until their full potential is realised, even though there may be short-term challenges. Nippon India Multi Cap Fund has proved its potential as a strong contender in the Multi Cap Fund category, as reflected in its past performance and has the potential to do so in the future as well.

Given its substantial allocation to mid caps and small caps, Nippon India Multi Cap Fund is best suited for investors with a high risk appetite and willing to stay invested for a long-term period of at least 5-7 years.

Watch this video to check out the comparative analysis of the two popular Multi Cap Funds namely Nippon India Multi Cap Fund and Quant Active Fund:

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This article first appeared on PersonalFN here