According to the Finpeg CRAFT Framework, the following are the best Multi Cap funds to invest in 2020 –
- Axis Multi Cap Fund
- SBI Focused Equity Fund
- Mirae Asset Focused Fund
- Kotak Standard Multicap Fund
These funds were chosen by us because they do well on certain pre-defined criteria. These criteria make Finpeg CRAFT Framework truly unique and more reliable than star ratings and rankings found elsewhere.
Read more about Finpeg CRAFT Framework for mutual fund selection here.
Here’s a quick introduction to each of the parameters we assess –
Finpeg CRAFT Framework
- Long Term Percentile Rank
This is the average percentile rank of the fund (among its peers) since January 2004. Additionally, it is based on 3-year rolling returns. This is relative measure since we are calculating the fund’s rank among its peers.
Lower the long-term percentile rank, better the relative performance.
- Top25 Percentage
This indicates how many times out of 100 did the fund appear in the top 25 percentile among its peers. This again is based upon a 3-year rolling returns basis. This is different from the first parameter since this is more focused toward consistency of performance.
Higher the top25 percentage, more consistent the relative performance.
- Downside Deviation
This is similar to standard deviation. Standard deviation considers volatility on the upside as well as downside. But the upside volatility is something that most investors are okay with. Hence, only the downside deviation is a better measure of riskiness of the fund.
Lower the downside deviation, lower is the risk associated.
- Near Term Percentile Rank
This parameter gives us a sense of the recent performance of the fund. We calculate 1-year average rolling returns for the last one year. Further, similar to the long-term percentile rank, we find the percentile rank of the fund among its peers.
Lower the near-term percentile rank, better the recent relative performance.
- Total AuM
This number tells us two things –
- Is the fund large enough to have adequate liquidity?
- Is the fund size manageable?
This metric is not extensively looked at for best Multi Cap Mutual fund selection unless it is super large. This is because most multi cap mutual funds have the choice of resorting to large cap stocks if AuM increases sharply. Large cap stocks are the most liquid. Hence, multi cap mutual funds are unlikely to see sustained underperformance due to a very large AuM. A small AuM, however, is a worrying factor as it also shows lack of investor confidence.
- Average Return in 2008-09
This shows how the fund was managed during the global financial crisis. A positive return should be extremely encouraging.
Greater the average return in 2008-09, better the fund management during times of crises.
- Fund Manager Since
This is a very important check. This helps us determine how much of the fund’s performance is attributable to the current fund manager.
If we have amazing numbers, they don’t mean a whole lot if the fund manager has changed recently. Then, we dive into assessment of the new fund manager and try to measure the impact of his appointment.
Why Axis Multi Cap Fund is the best multi cap mutual fund
Mirae Asset Large Cap was the best multi cap mutual fund to invest in 2019. This is because back then it was a multi cap fund. But Mirae Asset decided to re-classify it as a large cap mutual fund after we released last year’s list of best mutual funds.
Now Axis Multi Cap Fund takes up the top spot on the list of best multi cap funds.
You’ll notice the along with two multi cap funds, two focused funds also feature in this list – Mirae Asset Focused Fund and SBI Focused Equity Fund. Why did we do this since focused is a different category altogether?
We have actually clubbed three categories into the broadest category of multi cap funds. The three categories that have been clubbed are –
- Multi cap
- Focused
- Value/Contra
All the above categories are subsets of the multi cap category.
Focused funds are multi cap funds with a limit on the number of stocks it can take exposure to. The maximum number of stocks that a focused fund can invest in is capped at 30.
Value/contra are again multi cap funds with a specific mandate. There are no checks in place to ensure that value/contra are indeed taking value and contra positions. As matter of fact, most value/contra funds majorly hold growth stocks right now!
To the investor, there is essentially nothing significant to differentiate among the three categories. Hence, we have merged the three categories to make things a bit less complicated.
Another surprise you’ll see is the funds that actually feature on the list. Two of the funds are less than 3 years old but still feature. Let’s talk about Axis Multi Cap Fund first.
Axis Multi Cap Fund is managed by Mr. Shreyash Devalkar. Another fund managed by Mr. Devalkar – Axis Mid Cap Fund – features as the best mid cap fund to invest in 2020. At this fund too he has a very limited track record.
The real reason we like Mr. Devalkar is because he has a superb track record at BNP Paribas Mid Cap Fund. Another strong reason is the recent performance of the funds he has managed. He has done extremely well in an extremely volatile and hostile market. He made some fantastic calls regarding cash and exiting and resorting to quality businesses foreseeing turbulent times before most, if not all, others.
The other fund on the list with a limited track record is Mirae Asset Focused Fund. Again, there is a pretty subjective reason it features on the list. It is the fact that the fund is managed by Mr. Gaurav Misra.
Mr. Misra was a portfolio manager at ASK PMS and has an enviable track record with them. We like the fact that a successful portfolio manager at a leading PMS is managing a focused fund. Portfolio managers are most capable and comfortable with a focused approach.
The other two are pretty standard features that also appeared last year. SBI Focused Equity Fund has been an absolute winner ever since the current fund manager took over in 2009. Kotak Standard Multi Cap Fund is probably the most popular equity mutual fund in India and for a good reason – consistent performance.
We’re however not very confident of Kotak Standard Multi Cap Fund going forward. This is because of its gargantuan AuM of Rs. 30,000 crore. It is important to note that the large AuM hasn’t affected the performance of the fund yet.
It retains a place on the list given its undeniably good performance until now.
Return and risk of the best multi cap mutual funds
The criteria we use to assess mutual funds are not straight-forward. However, they are very accurate and exhaustive.
At the end of the day, most investors are concerned with risk and return. In this section, we will have a look at the historical performances of the best multi cap mutual funds listed above.
We will look at 3-year and 5-year rolling returns and standard deviations of the funds.
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