Risks associated with Multi Cap Mutual Funds
Multi-cap funds are considered to have a moderate risk-return profile. When markets are rising, they can outperform large and mid-cap funds. They also collect good gains from small-cap equities during market surges. When markets are down, however, large-cap funds can offer the cushioning needed to prevent returns from being eroded and severely damaged. They are less volatile than mid-cap funds in the long term, but riskier than large-cap funds. Fund managers can also deploy additional fund resources to a certain capitalisation depending on market movements.
However, they have 50% exposure to mid-cap and small-cap equities at any particular time, these funds are exposed to enough volatility. Even if fund managers can change asset allocation when there is a long bad market, it cannot be reduced below 25% in any section of capitalisations.