This multi-cap fund has survived the worst market cycles and yet delivered the highest returns

• Since its inception on March 28, 2005, Nippon India Multi Cap Fund has outperformed most peers and market benchmark Nifty500 with returns of 15.15% CAGR.
• ₹10,000 invested in the fund every month since inception for 17 years would have grown to ₹89.81 lakh now.
• During these pandemic years the fund invested in stressed and out-of-favour sectors that are generally avoided by others.

Over the last 17 years, Nippon India Multi Cap Fund has survived the worst of the markets – including the US housing bubble, global financial crisis, demonetisation, US election of Donald Trump, Covid-19 outbreak or the Russia-Ukraine war. The Fund has seen it all and still managed to deliver the highest returns in the multi-cap category.

Since its inception in March 2005, the fund has outperformed most peers and market benchmark Nifty500 with returns of 15.15% CAGR. In fact ₹10,000 invested in the fund every month since inception for 17 years would have grown to ₹89.81 lakh now.

Sailesh Raj Bhan, fund manager of Nippon India Multi Cap Fund believes in the mantra of value buying with a time horizon of three years. “Our attempt is to create that kind of a portfolio where you’re looking three years ahead and finding reasonable value in the business today, and you feel growth will accelerate from where we stand today,” said Bhan in an interaction with Business Insider India.

In the last three years, the fund has given exemplary returns of 28.23% CAGR – higher than 23.60% CAGR returns by benchmark Nifty500 index. During these pandemic years the fund invested in stressed and out-of-favour sectors that are generally avoided by others.
(Source: Value Research, Note: Above are all direct plan schemes)

“What has worked for us is our investment in engineering, manufacturing and in hotels, which has contributed significantly to the fund. The key idea was to choose sectors which are out of favour and offer disproportionate value. And if you remember, 12-18 months back, people did not want to invest in hotels as the narrative was hotels will not come back,” said Bhan

Cut to almost two years later, hotels are back in business with a huge pickup in travel and tourism, contrary to most expectations. In fact, hotel company stocks are among multibaggers, which has made fortunes for investors.

In April-June 2022, there has been a 244% increase in demand for hotels across six major cities — Delhi, Bengaluru, Chennai, Goa, Hyderabad and Mumbai, according to Hotel Momentum India Report 2022.

Talking about Nippon India Multi Cap Fund, Dhirendra Kumar, CEO of Value Research in a conversation with Business Insider India said, “It is a decent fund, nothing awkward about it. A fund which has survived this long and is not doing poorly in bad markets and doing okay in a rising market, you do the job.”

Staying steadfastly mid-cap amidst industry churn
In November 2020, SEBI introduced flexi cap and differentiated between multi cap and flexi cap because many mutual fund schemes were not true to their label and would invest predominantly outside of their defined spheres.

The differentiation is this – flexi mutual funds are allowed to choose the ratio between large, mid and small caps investments as they like. On the other hand, multi-cap funds are mandated to keep a minimum threshold of 25% investments in each of the three fund categories – large, mid and small cap. The remaining 25% can be invested at the fund manager’s discretion.

This led to many funds converting from multi cap to flexi cap, freeing them up to choose a majority of large-cap stocks and avoid risky investments.

Now, the tide is turning again. In the last one year, several mutual fund companies have come out with multi-cap new fund offers (NFOs) to fill their portfolio.

“After SEBI’s categorisation of flexi cap, every multi-cap fund changed their erstwhile multi-cap fund to flexi cap. And now, fund houses are filling up multi cap space as NFO gets MF more money than otherwise,” said Kumar of Value Research.

Amidst all this churn, Nippon India Multi Cap Fund steadfastly remained in the multi-cap category. It continued to find value in small caps, constantly looking for companies that are sector heads and offering an attractive valuation.

“Our end objective is to capture the market plus return over the medium term. Now, most investors find it difficult to navigate from capitalisation in large cap, mid cap and small cap stocks. We intend to choose the kind of companies that can ride through market cycles – so even in a small cap, we look at a business which has to be a top 1-2 company in that sector or category. For example, when we were investing in hotels, the leader was from a small cap,” said Bhan.

‘Multi cap is an all season fund’
Bhan says multi cap is an all season fund because of its equal exposure to the three categories – large cap, mid cap and small cap, and the flexibility to invest the rest in large-cap space generally.

Value Research’s Kumar believes multi-cap funds are a desirable category for investment as it has the necessary exposure to mid and small caps. “Everybody thinks flexi cap does almost the same thing as multi cap but not really. As flexi caps are becoming large, they are unable to have a meaningful position in mid caps and small caps,” Kumar said.

“And multi cap, because it is mandated to have a minimum of 25% in small cap and mid cap, gives you a real or rather enforced diversification. Otherwise erstwhile multicap, which are now called flexi caps, are now dominantly becoming large caps as they get bigger,” said Kumar.

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