Top 5 multi-cap funds with lowest expense ratios and highest long-term returns for investors to track

Multi-cap funds provide exposure to companies across large-, mid- and small-cap segments, making them a diversified investment option for many investors. When evaluating multi-cap funds, factors such as expense ratios, consistency of returns and performance relative to the benchmark can help identify suitable choices.

Here are five multi-cap funds with relatively low expense ratios that have delivered strong returns while outperforming their respective benchmarks.

What are multi-cap funds?

Multi-cap funds are equity mutual funds that allocate at least 75% of their total accumulated funds to equity and equity-related instruments.

As per regulations, these funds must invest at least 25% each in large-, mid- and small-cap stocks. This structure ensures that investors gain exposure across different market capitalizations, thereby creating a well-diversified portfolio.

However, these funds can be risky in the short term, as they maintain a 50% exposure to mid-cap and small-cap stocks at all times. This fixed allocation also limits the fund manager's flexibility to adjust to changing market conditions.

Hence, these funds are ideal for investors with a long-term investment horizon, say more than five years.

Top 5 multi-cap funds with the lowest expense ratio and the highest returns

Here is the list of the top five multi-cap funds with an expense ratio below the category average and three-year returns higher than the benchmark.

Factors to consider while selecting multi-cap funds

When analyzing the performance of multi-cap funds, it is important to examine the specific metrics.

Expense ratio

The expense ratio is the percentage deducted from the daily NAV before disclosure. This includes the cost deducted by the fund house for managing funds, including operational expenses, marketing costs, transaction costs, etc.

This means that the higher the fund's expense ratio, the lower its NAV and, by extension, its total returns.

Hence, it is important to check the expense ratio before investing in any multi-cap fund. To do this, check whether the fund has a lower expense ratio than its category average.

Past returns

Though past returns don't guarantee future performance, checking them is still very important. You can check whether the fund has beaten the benchmark over a period, say three years, five years, or more.

Rolling returns provide a better view of a mutual fund’s performance. Instead of relying on returns between one specific start date and end date, this approach evaluates how the fund has performed across various investment periods.

Alpha

Alpha is one such metric that helps you analyze how much return a fund has delivered relative to its benchmark index, after accounting for risk.

If the alpha of a multi-cap fund is positive, it means the fund has delivered higher returns than the benchmark index, and vice versa.

To do this, simply check whether the fund's alpha is higher than the category average. A higher alpha indicates that the fund has generated better risk-adjusted returns than its peers.

Beta

Beta helps you analyze a fund's risk or volatility relative to its benchmark index.

If a fund has a beta of 1, it means it has moved in line with the benchmark index. So, if the index rises or falls by 2%, the fund moves in the same direction.

A beta below the category average indicates that the fund has relatively lower volatility than similar funds.

Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.