DSP Launches Multicap Fund NFO – Issue Details and Review

DSP mutual funds have launched Multicap Fund NFO, which will be available for subscription on January 8, 2024. This fund is open-ended and invests in stocks of large cap, mid-cap, and small cap companies. These mutual funds can help investors in diversifying their portfolios and have the potential to provide risk-adjusted returns across different market cycles. Should you invest in DSP Multicap Fund NFO? What risk factors investors should consider before investing in such funds.

DSP Multicap Fund – NFO Issue Details

Here are the NFO details.

Fund Name DSP Multicap Fund
NFO Opens 08-Jan-24
NFO closes 22-Jan-24
Scheme reopens for continuous purchase/sale Within 5 working days
Minimum Application Amount Rs  100 and in multiples of Rs  1 thereafter
Minimum SIP Rs 100 for 12 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load Nil
Scheme Category Multi Cap Fund
Risk Very High Risk
Benchmark Nifty 500 Multicap 50:25:25 TRI
Fund Manager Chirag Dagli

DSP Multicap Fund SID

What is the investment objective of DSP Multicap Fund NFO?

The investment objective of the scheme is to seek to generate long-term capital appreciation from a portfolio of equity and equity related securities across market capitalization.

There is no assurance that the investment objective of the Scheme will be achieved.

DSP Launches Multicap Fund NFO – Issue Details and Review

What is the allocation pattern in this mutual fund scheme?

This fund investment pattern is as follows:

Type of instruments Min % Max % Risk Profile
Equities and equity related securities of which: 75% 100% Very high Risk
Largecap companies 25% 50% Very high Risk
Midcap companies 25% 50% Very high Risk
Smallcap companies 25% 50% Very high Risk
Equity and equity related overseas securities$ 0% 25% Very high Risk
Debt and Money Market Instruments 0% 25% Low to Moderate Risk
Units issued by REITs and InvITs 0% 10% Very high Risk

Multicap Funds vs. Flexicap Mutual Funds – What’s the Difference?

Multicap funds invest in stocks of different market capitalizations, including large-cap, mid-cap, and small-cap stocks. However, SEBI (Securities and Exchange Board of India) introduced a new rule stating that Multicap funds should invest a minimum of 25% in each of the large-cap, mid-cap, and small-cap segments. Alternatively, AMCs had a choice to either follow this rule or rename the fund as “flexicap” if they do not wish to comply.

This is how flexicap mutual funds emerged. Flexicap funds used to be known as Multicap funds until January 2021. Since then, most mutual fund houses have changed the names of their funds in this category by adding the term “Flexicap.”

Under the new definition, multicap mutual funds must invest at least 25% in each of the large-cap, mid-cap, and small-cap stocks. Beyond this requirement, they have the flexibility to invest based on the fund’s investment objective.

On the other hand, flexicap funds invest in stocks across all market capitalizations (large-cap, mid-cap, and small-cap) without any minimum investment restrictions. This gives the fund manager the flexibility to make investment decisions, particularly when a certain market segment is underperforming.

Why to Invest in DSP Multicap Fund NFO?

Here are a few reasons to invest in this fund.

  • This fund ensures that at least 25% of the investments are made in large-cap, mid-cap, and small-cap stocks. This can be beneficial for investors as it helps diversify their portfolio across different market segments.
  • Based on historical data, we have noticed that different segments of the market, such as large-cap, mid-cap, and small-cap, perform well during different cycles. As a result, this type of mutual fund has the potential to deliver consistent returns, considering the level of risk, throughout various market cycles.

Why Not to invest in DSP Multicap Fund NFO?

One should consider some of these risk factors / negative factors before investing.

  • This fund will allocate a minimum of 25% to large-cap, mid-cap, and small-cap stocks. It’s important to note that this type of portfolio allocation is relatively new, being only around 3 years old. As a result, we don’t yet know how this allocation will perform in the medium to long term.
  • The fund will invest in small-cap and mid-cap stocks. While these stocks have the potential to provide high returns over the long term, it’s crucial to understand that they come with a higher level of risk. Just look at what happened on December 20, 2023, where midcap and small-cap stocks lost up to 4% each in a single day.
  • Up to 25% of the fund’s portfolio will be invested in debt instruments. It’s important to be aware that investing in debt instruments carries certain risks, including interest rate risk, reinvestment risk, credit risk, and liquidity risk.
  • Additionally, the fund will allocate up to 10% to REITs and InvITs, which are considered high-risk investments.
  • Investors should review all risk factors indicated in the scheme information document (SID) before investing in such schemes.

Performance of existing Multi Cap Funds

Multicap funds have emerged in the past 2 years and 11 months, with only a few funds retained from the previous category based on the old definition. Now, let’s examine the short to medium-term performance of these funds.

Scheme Name 1 Yr 3 Yrs 5 Yrs 10 Yrs
Quant Active Fund 17% 30% 26% 24%
Kotak India Growth Fund – Series IV 33% 27% 25%
Mahindra Manulife Multi Cap Fund 30% 29% 23%
Edelweiss Maiden Opportunities Fund 30% 20% 21%
Edelweiss Recently Listed IPO Fund 30% 20% 21%
Baroda BNP Paribas Multi Cap Fund 26% 24% 20% 16%
Nippon India Multicap Fund 32% 33% 19% 18%
Invesco India Multicap Fund 27% 23% 18% 20%
Sundaram Multi Cap Fund 27% 25% 18% 18%
ICICI Prudential Multicap Fund 30% 25% 18% 18%
Aditya Birla Sun Life Multi Cap Fund 24%
Axis Multicap Fund 33%
Bandhan Multicap Fund 25%
HDFC Multicap Fund 35%
IDFC Multicap Fund 25%
ITI Multi Cap Fund 34% 20%
Kotak Multicap Fund 34%
LIC MF Multi Cap Fund 27%
SBI Multicap Fund 19%
Union Multicap Fund 28%

Should you invest in DSP Multicap Fund NFO?

DSP Multicap Fund ensures a minimum investment of 25% in each of the large-cap, mid-cap, and small-cap stocks. In the short term (1 to 2 years), this category has shown exceptional performance. While investing in large-cap stocks can provide stable returns, investing in mid-cap and small-cap stocks has the potential to yield very high returns in the medium to long term. Therefore, investing in this multicap fund can offer opportunities that align with market cycles.

However, it’s important to note that investing in the mid-cap and small-cap segments of such funds carries high risk, and your capital could be at risk.

This MF scheme is more suitable for high-risk investors with a medium to long-term perspective. Alternatively, if you prefer not to invest in these new multicap funds, you can consider some of the existing funds from this category.

Suresh KP

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