NFO Analysis: Kotak Multi-Cap Fund

Multi-cap funds are open-ended equity-oriented schemes offered by mutual funds. Multi-cap funds invest across different market capitalization such as large-cap, mid-cap and small-cap. Large-cap funds offer stability, whereas mid-cap and small-cap have the potential to deliver higher returns. As per SEBI minimum investment in equity & equity related instruments should be 75 per cent of total assets. 

Kotak mutual fund has launched Kotak Multi-cap fund which aims to generate long-term capital appreciation and is open for subscription from September 7, 2021, and it will close on September 22, 2021. 

CLICK HERE to access its scheme information document (SID) 

Objective: The main objective of the scheme is to generate long-term capital appreciation from a portfolio of equity and equity-related securities across market capitalization. Nevertheless, there is no assurance that the objective of the scheme will be realized. 

Asset Allocation: 

The above asset allocation shows that at all times, it will not invest less than 75 per cent in equity & equity related instruments while in debt instruments asset allocation cannot go beyond 25 per cent. Moreover, along with debt, they might also have exposure to REITs & InvITs, not more than 10 per cent. 

Benchmark: The performance of the scheme is measured against the Nifty 500 Multicap 50:25:25 Total Returns Index. 

Strategy: To achieve the investment objective, the scheme will invest in equity & equity related instruments across market capitalization defined as per SEBI: 

The minimum investment in equity & equity related instruments should be 75 per cent of total assets in the following manner: 

• Minimum investment in equity & equity related instruments of large-cap companies - 25 per cent of total assets. 

• Minimum investment in equity & equity related instruments of mid-cap companies - 25 per cent of total assets.

• Minimum investment in equity & equity related instruments of small-cap companies - 25 per cent of total assets. 

The portfolio construction will be based on a thematic approach to bottom-up stock picking using the Business, Management and Valuation (BMV) model. The fund manager will assess the business environment that the company operates in, the competence of the management to execute and scale up the business and the valuation of the company based on fundamentals such as discounted cash flow and PE ratios, etc. The scheme may also invest in listed/unlisted and/or rated/unrated debt or money market securities, provided the investments are within the limits indicated in the asset allocation pattern. 

Fund Manager: Harsha Upadhayaya and Devender Singhal for Equity, Abhishek Bisen for Debt and Arjun Khanna for Overseas Instruments. 

To conclude, with the introduction of flexi-cap funds by SEBI, most of the mutual funds converted multi-cap funds to flexi-cap funds. Flexi-cap funds have the freedom to invest in a proportion of the portfolio in any market cap without restriction. A multi-cap fund on the other hand will need to hold a minimum of 25 per cent each in large, mid and small caps. So, one might invest in the flexi-cap fund rather than investing in multi-cap funds. Investing in NFO isn’t a good option as there are no past records available which might be risky.