Kotak MF Launches Multicap Fund NFO – Review

Kotak Mutual Fund Launches Multicap Fund - NFO ReviewKotak Multicap Fund – NFO issue Details and Risk Factors

Kotak mutual funds has launched a new fund offer, Kotak Multicap Fund that would open for subscription on 8th September 2021. It’s an open-ended fund that invests in large cap, mid-cap, and smallcap stocks. SEBI has changed the guidelines earlier where it indicated that multicap funds should invest minimum 25% each in largecap, midcap and smallcap stocks. Many multicap funds have converted into flexicap mutual funds after this guideline has come. Earlier ABSL has come up with multicap fund after this change and now Kotak has launched this multicap fund. Should you invest in Kotak Multicap NFO? Let me review this multicap fund along with risk factors.

Also Read:  Best Flexicap Mutual Funds to invest in 2021

Kotak Multicap Fund – NFO Issue Details

Kotak Multicap Fund would open for subscription on Wednesday, 8th September 2021 and closes on Wednesday, 22nd September 2021. Since this is an open-ended mutual fund scheme, it would again open after 5 days from initial NFO closure date.

Here are the NFO issue details.

Scheme Opens 08-Sep-21
Scheme Closes 22-Sep-21
Scheme reopens for continuous purchase/sale Within 5 days from closure date
Minimum Lumpsum Rs 5,000
Minimum SIP Rs 1,000 for 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load Within 1 year – beyond 10% of investments – 1% exit load
After 1 year – Nil
Risk Very High Risk
Benchmark Nifty 500 Multicap 50:25:25 TRI

Kotak Multicap Fund SID (draft). Final SID is not yet available.

What is the investment objective of Kotak Multicap Fund NFO?

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

However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved.

What is the allocation pattern in this mutual fund scheme?

This fund investment pattern is as follows:

Type of instruments Min % Max % Risk Profile
Equity & equity related securities – Largecap 25% 100% Medium to High
Equity & equity related securities – Midcap 25% Medium to High
Equity & equity related securities – Smallcap 25% Medium to High
Debt and Money Market Securities 0% 25% Low to Medium
Units issued by REITs and InvITs 0% 10% Medium to High

Multicap Mutual funds Vs Flexicap Mutual Funds – What’s the difference?

Multicap funds invest across market cap – largecap, midcap and smallcap stocks. However, SEBI has bought new rule indicating that multicap funds should invest 25% minimum each in largecap, midcap and smallcap segment. SEBI gave an option to AMCs either adhere to this or change the name of the funds to “flexicap” if they don’t want to adhere to this rule.

This is how flexicap mutual funds were evolved. Flexicap funds were erstwhile multicap funds till Jan-2021. Post this, majority of the mutual fund houses have changed the name of the fund to “flexicap”.

As per new definition, multicap mutual funds would invest minimum of 25% each in largecap, midcap and smallcap stocks. Beyond this they can invest based on the investment objective of the fund.

Flexicap funds on other side would invest across market cap i.e., largecap, midcap and smallcap, however do not have any minimum investment restriction. This gives flexibility to fund manager to take decision to move funds especially when certain segment is under performing.

Why to invest in Kotak Multicap Fund NFO?

Here are a few reasons to invest in this fund.

1) This fund would invest a minimum of 25% each in large cap, Midcap and smallcap which can help investors for portfolio diversification.

2) While investment in large cap stocks would provide stability, investment in midcap and smallcap segment would provide opportunity to invest in multibagger stocks that can generate high returns. Check recent midcap mutual fund rally and small cap mutual fund outstanding performance.

Major risk factors you should consider before investing in such funds

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

1) This fund would invest a minimum of 25% each in large cap, midcap and smallcap stocks. This kind of portfolio allocation is relatively new, and we do not know how such allocation would perform in medium to long term.

2) This scheme would invest in smallcap and midcap stocks. While such stocks can provide high returns in the long term, these are high risk.

3) This mutual fund would invest up to 20% in foreign assets. Investments in overseas markets has currency risk along with geo-political risk.

4) It invests in debt instruments where there is interest rate risk, price risk, credit risk and liquidity risk.

Performance of existing Multicap Funds

There are multicap funds which have been investing without any 25% minimum limit in large cap, midcap and smallcap. However, due to change in SEBI rule, these funds started aligning to this new rule in the last few months. While it might not be appropriate to refer such multicap funds, here is the performance of these funds in the last 3 to 10 years’ time frame.

Scheme Name  3 Yrs 5 Yrs 10 Yrs
Quant Active Fund 28.2% 23.0% 20.1%
Mahindra Manulife Multi Cap Badhat Yojana 21.3% NA NA
Invesco India Multicap Fund 14.6% 15.1% 18.4%
Principal Multi Cap Growth Fund 15.0% 15.9% 17.7%
ICICI Prudential Multicap Fund 12.7% 13.1% 15.8%
BNP Paribas Multi Cap Fund 16.6% 14.4% 15.6%
Nippon India Multi Cap Fund 12.9% 13.0% 15.3%
Baroda Multi Cap Fund 16.7% 14.1% 13.7%

Also Read: Axis Value Mutual Fund NFO –  Should you invest or avoid?

Should you invest in Kotak Multicap Fund NFO?

Kotak Mutual Fund Multicap Fund invests a minimum of 25% each in large cap, midcap and smallcap stocks. The definition of multicap funds was different 9 months back. We do not know how this new allocation would benefit investors in short, medium and long term. High risk investors can invest in this scheme for medium to long term perspective. If you don’t want to test these new multicap funds, you can opt for some of the Best Flexicap Mutual Funds in 2021.

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Suresh KP

One comment

  1. In Such a heated market with some crazy valuations , why is Kotak coming up with a Multicap fund? Arent the small caps, midcaps already overvalued and hence any crash would make the folio negative?

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