Best Multi Cap Mutual Funds: Nippon India Multi Cap Fund vs Quant Active Fund
September 28, 2024 Mutual Fund
The multi-cap category of mutual funds has gained immense popularity among investors looking for diversified equity portfolios across various market capitalizations. These funds invest in large-cap, mid-cap, and small-cap companies, offering a blend of stability, growth, and high returns.
Unlike large-cap or small-cap funds that are restricted to a specific market cap, multi-cap funds provide flexibility to fund managers to allocate assets based on market conditions, valuations, and opportunities. This diversification across companies of different sizes helps mitigate risks while taking advantage of potential high returns from mid-cap and small-cap stocks during market upswings.
Key Features of Multi Cap Funds:
Flexibility: Freedom to invest across market caps allows fund managers to adapt to changing market conditions.
Diversification: The mix of large, mid, and small-cap companies helps in risk management.
Potential for Higher Returns: Exposure to mid and small-cap companies can offer substantial growth potential during market rallies.
The multi-cap segment underwent a significant change in 2020 when SEBI revised the allocation rules for these funds. Previously, fund managers had flexibility in allocating assets across market capitalizations-large, mid, and small caps-depending on their market outlook. However, SEBI’s new mandate stipulated a minimum allocation of 25% each as mentioned below:
– 25% in Large Cap: Providing stability and relatively lower risk
– 25% in Mid Cap: Offering a blend of growth potential and moderate risk
– 25% in Small Cap: Injecting higher growth potential but with greater volatility
This shift aimed to ensure true diversification, compelling fund managers to include a higher percentage of mid and small-cap stocks, thus making the fund more reflective of the entire market spectrum.
[Read: Best Multi Cap Funds for 2024 – Top Performing Multi Cap Mutual Funds in India]
In 2024, the multi-cap segment has been thriving due to broad market participation across all capitalizations. Large-cap stocks have provided stability in the portfolios, driven by resilience in major industries such as IT and financial services. Meanwhile, mid-cap and small-cap stocks have shown robust growth due to the post-pandemic economic recovery, with sectors like manufacturing, infrastructure, and green energy gaining momentum.
Multi-cap funds have thus been well-positioned, benefiting from the rally in mid and small-cap stocks while maintaining stability through large-cap investments. As a result, investors in multi-cap funds have experienced high returns, albeit with greater volatility.
Should You Consider Multi Cap Funds Amidst Rising Market?
Multi-cap funds can be particularly advantageous during a rising market scenario due to their diversified portfolio across different market capitalizations. In such an environment, large-cap stocks typically offer stability and steady returns, while mid and small-caps provide the potential for higher growth.
As the market continues to rise, multi-cap funds allow investors to participate in broad market growth, benefiting from both stability and aggressive growth opportunities. In a rising market, many investors tend to chase high returns by focusing solely on mid and small-cap funds. However, this approach can expose them to higher volatility and risk.
[Read: Flexi Cap Funds v/s Multi Cap Funds: Which Is Better at a Market High?]
Multi-cap funds, by design, offer a more balanced risk-return profile. They allow investors to enjoy the upside of small and mid-cap stocks without taking on excessive risk, thanks to the large-cap exposure that cushions the portfolio during any market corrections or volatility, providing a safety net that is crucial in high market conditions where corrections are inevitable.
This makes multi-cap funds an ideal choice for investors looking for growth with a controlled risk strategy during bullish phases in the market.
This article offers an in-depth comparison of the top two multi-cap mutual funds in India, Nippon India Multi Cap Fund vs Quant Active Fund, to aid you in making informed investment decisions.
# – Nippon India Multi Cap Fund
Nippon India Multi Cap Fund is an open-ended equity scheme that belongs to Nippon India Mutual Fund. Launched in March 2005, the fund has a long track record and currently holds an AUM of Rs 38,115.28 crores.
Nippon India Multi Cap Fund, earlier known as Reliance Multi Cap Fund, has been a favourite among investors due to its dynamic asset allocation strategy. The fund aims to provide long-term capital appreciation by investing in a diversified portfolio across large-cap, mid-cap, and small-cap stocks.
Quant Active Fund is an open-ended equity scheme and belongs to Quant Mutual Fund. It is another prominent multi-cap fund focusing across market caps and sectors. Launched in March 2001, the fund has quickly gained popularity and currently holds an AUM of Rs 11,262.23 crores.
Quant Active Fund is a standout performer in the multi-cap category, known for its tactical asset allocation and data-driven approach. The fund seeks to generate long-term capital appreciation by investing in a diversified portfolio across different market capitalizations.
Investment Style and Philosophy:
Nippon India Multi Cap Fund: follows a diversified approach by investing across market caps, its core philosophy is to capitalize on the growth potential in all market segments while managing the risk through diversification. The fund adopts a bottom-up stock selection process, focusing on companies with sound fundamentals, strong management, and a robust growth outlook. It actively looks for opportunities across sectors that can provide sustainable returns, making it well-suited for investors with a long-term perspective.
What stands out in the Nippon India Multi Cap Fund is its flexibility. The fund’s strategy adapts to changing market conditions, ensuring it can seize opportunities across different economic cycles. This makes it versatile enough to perform well in both bullish and bearish markets, providing investors with growth prospects even during market volatility.
Quant Active Fund: follows a momentum-based strategy to identify attractive-looking opportunities across stocks and sectors. Quant Active Fund selects stocks by analysing them on its proprietary VLRT framework, viz. Valuations, Liquidity, Risk, and Timing.
Quant Active Fund follows an aggressive investment approach wherein it constantly looks for opportunities to generate high alpha. The hallmark of Quant Active Fund is its tactical allocation strategy, which allows the fund to take opportunistic positions in equities across different sectors and market segments. This active management philosophy ensures that the portfolio is regularly reviewed and rebalanced according to prevailing market conditions.
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Performance Comparison: Rolling Returns
Scheme Name Absolute (%) CAGR (%) 1 Year 3 Years 5 Years 10 Years Nippon India Multi Cap Fund(G)-Direct Plan 43.81 32.71 22.66 16.70 Quant Active Fund(G)-Direct Plan 39.94 28.78 30.27 17.94 Category Average – Multi Cap 32.88 24.88 22.59 18.72 Benchmark – Nifty500 Multicap 50:25:25 – TRI 38.39 15.60 – – Nifty 500 TRI 31.75 19.73 18.49 15.57 Data as of August 31, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)The Nippon India Multi Cap Fund and the Quant Active Fund have shown strong performance across various periods, outperforming their benchmark and category average, reflecting their robust strategies and the potential of a multi cap segment.
While both funds have performed well over the years, Nippon India Multi Cap Fund shows a stronger short-term performance, particularly in the 1-year and 3-year categories, indicating its ability to capitalize on current market trends and growth opportunities.
The fund has capitalized on short-term market movements effectively, particularly in a bullish phase. Its consistent returns over longer periods, such as a CAGR of 22.66% over 5 years and 16.70% over 10 years, showcase the fund’s ability to perform well across market cycles, benefiting from its diversified multi-cap strategy.
On the other hand, Quant Active Fund has delivered superior long-term returns, especially in the 5-year category, where it achieved a notable 30.27% CAGR, which is significantly higher than both Nippon India Multi Cap Fund and the category average. This reflects the fund’s ability to adapt dynamically to changing market conditions, enhancing long-term growth potential.
[Read: Mutual Funds Are Betting Big on These Sectors: Are You Missing Out?]
The fund truly shines in its 3-year CAGR of 28.78% and 5-year CAGR of 30.27%, significantly outperforming both the category average and the Nifty 500 TRI benchmark during these periods. This suggests that the fund’s data-driven, dynamic allocation strategy has been highly effective in identifying market opportunities, particularly in volatile or uncertain market conditions.
Investors looking for strong short-term performance may find Nippon India Multi Cap Fund more appealing, while those with a long-term horizon may benefit from the superior, consistent returns of Quant Active Fund, especially given its tactical investment style.
Moreover, past performance should not be the only element, it’s important to note that one may consider other factors like portfolio holdings, risk profile, and investment philosophy before making a decision.
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Portfolio Composition: Asset Allocation of Schemes
The Quant Active Fund and the Nippon India Multi Cap Fund are two prominent mutual funds under the multi-cap category, each with a distinctive asset allocation strategy.
Scheme Name Large Cap % Mid Cap % Small Cap % Quant Active Fund 33.46 23.96 25.86 Nippon India Multi Cap Fund 41.42 25.94 29.63 Data as of August 31, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)The Nippon India Multi Cap Fund’s asset allocation reflects a well-diversified approach across market capitalizations. With 41.42% allocated to large-cap stocks, it ensures a solid foundation of stability and steady growth.
On the mid-cap front, the fund allocates 25.94% of its portfolio to these companies, offering a blend of growth potential with relatively moderate risk. By investing nearly a quarter of its portfolio here, the fund positions itself to capture high-growth opportunities while balancing them with the safety provided by large caps. A significant 29.63% of the fund is allocated to small-cap stocks, showcasing the fund’s intent to capture the growth potential of emerging companies.
Quant Active Fund’s asset allocation strategy is slightly more conservative in large-cap exposure compared to Nippon India Multi Cap Fund, with 33.46% allocated to large caps. While still providing a strong base of stability, this fund’s lower allocation to large caps suggests a more aggressive stance, allowing more room for tactical shifts in mid and small-cap stocks.
[Read: Investing in High-Risk Mutual Funds: A Bold Approach]
Quant Active Fund allocates 23.96% to mid-cap and 25.86% to small-cap stocks. This nearly equal exposure to mid and small caps indicates the fund’s strategy to maintain a diversified growth approach, focusing more on capturing opportunities in smaller and emerging companies than Nippon India Multi Cap Fund.
While both funds maintain exposure across large, mid, and small-cap stocks, Nippon India Multi Cap Fund has a more pronounced tilt toward large-cap stability, whereas Quant Active Fund adopts a more dynamic, balanced approach between mid and small-cap allocations, allowing greater flexibility to capture market movements.
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Market Volatility: Risk Profile of Schemes
Investing in multi-cap mutual funds may offer benefits from the growth potential of various market segments; however, understanding the scheme’s risk-reward profiles is crucial before investing.
Risk Ratio Quant Active Fund Nippon India Multi Cap Fund Standard Deviation (3 Year) 17.52 14.65 Sharpe 0.28 0.43 Sortino 0.52 0.89 Data as of August 31, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)An investment with high volatility is considered riskier than an investment with low volatility; the higher the Standard Deviation, the higher the risk. In this case, Quant Active Fund has a higher standard deviation of 17.52 compared to Nippon India Multi Cap Fund’s 14.65. This suggests that Quant Active Fund is more volatile, meaning its returns can experience larger swings, exposing investors to greater short-term risks.
Nippon India Multi Cap Fund has a higher Sharpe ratio of 0.43 compared to Quant Active Fund’s 0.28. This implies that, on a risk-adjusted basis, Nippon India Multi Cap Fund is offering better rewards for the risk investors are taking, making it a more efficient option in terms of balancing risk and reward.
Nippon India Multi Cap Fund has a Sortino ratio of 0.89, significantly higher than Quant Active Fund’s 0.52. This suggests that Nippon India Multi Cap Fund is better at protecting investors against potential losses while still delivering favourable returns, making it a less risky option for those concerned about downside volatility.
Quant Active Fund’s higher standard deviation points to a more aggressive investment style, potentially leading to larger gains or losses over shorter time frames. While the Sharpe and Sortino ratios suggest that it may not be as efficient in terms of risk-adjusted returns compared to Nippon India Multi Cap Fund, its higher volatility can attract investors with a higher risk tolerance who are willing to accept larger fluctuations in exchange for the possibility of higher rewards.
Remember, this comparison is just to give you an idea of the risk profile of the two best multi-cap mutual funds. Consider your risk tolerance and investment goals to determine which fund aligns better with your investment strategy.
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Top Holdings of the Schemes:
Both funds offer exposure to key areas of the Indian economy but differ in their top holding preferences and sector concentration strategies.
Nippon India Multi Cap Fund Quant Active Fund Company % Assets Company % Assets HDFC Bank Ltd. 5.80 Reliance Industries Ltd. 9.55 ICICI Bank Ltd. 3.29 Aurobindo Pharma Ltd. 5.63 Infosys Ltd. 3.21 Steel Authority Of India Ltd. 4.28 Reliance Industries Ltd. 2.93 Swan Energy Ltd. 3.93 Linde India Ltd. 2.89 Life Insurance Corporation of India 3.54 GE T&D India Ltd. 2.59 Adani Power Ltd. 3.36 Axis Bank Ltd. 2.56 Britannia Industries Ltd. 3.28 NTPC Ltd. 2.51 JIO Financial Services Ltd. 3.26 EIH Ltd. 2.49 Aegis Logistics Ltd. 2.89 Vesuvius India Ltd. 2.24 Container Corporation Of India Ltd. 2.79 Data as of August 31, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)Nippon India Multi Cap Fund reflects a diversified investment across key sectors, with a strong focus on banking and financial services. HDFC Bank Ltd., the fund’s largest holding at 5.80%, signals its confidence in the stability and growth prospects of India’s largest private-sector bank. The second-largest banking stock, ICICI Bank Ltd., makes up 3.29% of the portfolio, further emphasizing the fund’s preference for blue-chip financial institutions.
Alongside financials, the fund holds significant positions in Infosys Ltd. (3.21%) and Reliance Industries Ltd. (2.93%), highlighting a strategic allocation towards IT and energy, which are key drivers of the Indian economy. The fund’s holdings in diversified sectors such as Linde India Ltd. (2.89%) and NTPC Ltd. (2.51%) also show a focus on industrial and energy stocks.
By spreading its investments across industries, Nippon India Multi Cap Fund manages to achieve a balance between growth potential and risk diversification.
Quant Active Fund’s top holdings reveal a different strategy, with the highest allocation going to Reliance Industries Ltd. (9.55%), significantly higher than that of Nippon India. This overweight position in India’s largest conglomerate reflects confidence in its leadership across diverse sectors such as energy, telecom, and retail.
Quant Active Fund’s top holdings reveal a different strategy, with the highest allocation going to Reliance Industries Ltd. (9.55%), significantly higher than that of Nippon India. This overweight position in India’s largest conglomerate reflects confidence in its leadership across diverse sectors such as energy, telecom, and retail.
The fund’s presence in sectors like steel, insurance, and logistics reflects a strategy to benefit from industrial growth, consumer demand, and infrastructure development. The diversity in Quant Active Fund’s holdings and sectors suggests a dynamic approach, utilizing sector rotation based on macroeconomic conditions to maximize returns.
This subtle difference in sector focus within the multi-cap segment could influence the funds’ performance based on how those specific stocks perform.
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Expense Ratio of the Schemes
When comparing thematic funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here’s a quick breakdown of Nippon India Multi Cap Fund vs Quant Active Fund:
Scheme Name Direct Plan Expense Ratio Regular Plan Expense Ratio Nippon India Multi Cap Fund 0.74% 1.56% Quant Active Fund 0.58% 1.70% Data as of August 31, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)As you can see, the Nippon India Multi Cap Fund has a significantly lower expense ratio for a regular plan as compared to the Quant Active Fund. Do note even a small percentage point difference in expense ratio may accumulate over time and impact your returns.
Quant Active Fund’s lower expense ratios under the direct plan could be considered a cost-effective option for many investors. However, do remember, that a lower expense ratio translates to potentially higher returns over time, but a lower expense ratio should not be the only factor to be considered while investing in sectoral funds.
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Suitability of Investors to the Schemes:
Nippon India Multi Cap Fund is well-suited for investors seeking long-term wealth creation through a diversified portfolio. With its allocation spread across large-cap, mid-cap, and small-cap stocks, the fund aims to balance risk and reward, making it appropriate for investors who want exposure to the entire spectrum of the equity market.
This fund is ideal for investors with a moderate to high-risk appetite who are willing to stay invested for the long term. The diversified sector allocation allows investors to benefit from various market cycles, making it a good option for those who seek consistent returns over time.
[Read: Thematic Funds Become Market Leaders with Record-High AUM Growth]
Quant Active Fund with its data-driven, tactical asset allocation, is ideal for high-risk investors who prefer dynamic management and are comfortable with volatility. The fund actively shifts investments based on quantitative models and market conditions, making it appealing to seasoned investors who understand market cycles and can handle frequent rebalancing.
Its significant allocations in energy, pharma, and industrials offer growth potential, but the short-term volatility requires a longer investment horizon. Over time, its tactical adjustments aim to maximize returns by capitalizing on trending sectors, making it suitable for those seeking higher rewards.
To conclude…
Multi-cap funds remain a compelling choice in the current market due to their ability to navigate market uncertainties through diversified portfolios. Investors looking for stability with growth potential may find Nippon India Multi Cap Fund a suitable option, while those with a higher risk appetite and preference for a more active, tactical approach may prefer Quant Active Fund.
Both schemes offer distinct strategies, ultimately, the choice between these funds should align with your investment goals and risk tolerance.
Disclaimer: PersonalFN does not receive any monetary compensation from the fund house or scheme names stated in the article.
This article first appeared on PersonalFN here
