Large- and multi-cap funds complement each other well

A multi-cap fund invests across the breadth of the equity market.
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First Published: Mon, Jan 28 2013. 01 52 PM IST
Hemant Mishra/Mint
Hemant Mishra/Mint
A few fund houses have schemes that invest in equity, debt and gold. Is it a good option to invest in a scheme that invests in all three?
—Sunaina
When it comes to multi-asset funds, there are several combinations available—there are plenty of equity and debt funds and there are combinations of equity and gold, debt and gold, and, as you mention, all three in a single fund. There are two reasons why an investor would want to invest in such funds. One, when the investor would like to leave the task of determining the allocation between these assets to a fund manager as it would be difficult for her to predict the equity market, gold prices, or the interest rate scenario. Two, if an investor wants to invest a small amount, say Rs.1,000 every month, in multiple assets, it would be difficult to apportion small amounts across different asset classes. In this situation, choosing a single fund would be prudent.
So such funds are a good choice if either the investment amount is too small or if the investor wants to let a fund manager determine the asset allocation. If an investor has sufficient amount to invest and can do the asset allocation, perhaps with the help of an adviser, there would be no need to consider these funds.
I invest in DSP BlackRock Top 100 Equity and DSP BlackRock Equity. What is the difference between the two? Are they good for the long term?
—Karan
Both DSP BlackRock Top 100 and DSP BlackRock Equity are good, well-rated diversified equity funds. However, they focus on different segments of the equity market resulting in a different risk-return profile for each.
The Top 100 fund is a pure large-cap fund with at least 95% of its portfolio in the biggest companies in the market. The equity fund, however, has only about half its portfolio in the large-cap segment of the market with the remaining invested in mid- and small-cap segments. This makes the latter a multi-cap fund—a fund that invests across the breadth of the equity market. It also makes the equity fund riskier of the two.
This fact is borne out by the return figures of the funds as well. In the calendar year 2012, when the equity markets did well, the Top 100 fund returned 30.2%, while the equity fund returned 33.26%. In 2011, when the markets fared poorly, the equity fund lost 23.89%, while Top 100 fund lost only 19.85%. However, it must be noted that in all these cases, both the funds did better than their benchmark indices.
So what does this mean for an investor? If one wants to stay conservative with their equity fund choice, the Top 100 would be the way to go, else the equity fund is a good choice. Of course, one could also invest in both these funds in a portfolio since they complement each other well.
Queries and views at mintmoney@livemint.com
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First Published: Mon, Jan 28 2013. 01 52 PM IST
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