How this Mutual Fund turned Rs 10,000 to Rs 1.54 lakh since inception: Fund manager shares the ‘secret’

Since its inception on 28 March 2005, Nippon India Multi Cap Fund has outperformed competitors, with a return of 17.08%. Rs 10,000 invested in this fund at the time of inception could have grown to Rs 1,54,203 till now. In the last two years, the fund has been able to generate a massive return of 44% and 18% since last year, as of 31 July 2022.

While it can’t be guaranteed that the past performance would sustain in future in view of market risks, the story of this multi-cap fund’s awesome returns over the years deserves to be looked at in detail. In an e-mail interaction with FE PF Desk, Sailesh Raj Bhan, Deputy CIO Equities Nippon India MF, shares the secret behind the success of this multi-cap fund and what he thinks about the future. Edited Excerpts

What’s the secret behind the success of this fund till now? 

Over the last 17 years, the fund has focused on some key principles. 1) High conviction investing in select large opportunities, 2) Buying quality businesses at reasonable prices and 3) not overpaying for growth. The core framework can be summed up as “Buying sustainable growth businesses at reasonable valuations. The fund has clear avoidance of pure momentum/trading strategies. More importantly, the portfolio is constructed from a medium to long-term perspective and the attempt is to benefit from any significant market distortions, without comprising the portfolio quality.

Source: Factsheet/NIMF

Do you think this multi-cap fund will continue to give such high returns in future?

Given the domestic growth possibilities especially in the backdrop of revival in cyclical businesses, opening up or normalization after the pandemic challenges etc we believe that the broader markets can potentially outperform over the medium to long term. The outlook for the potentially faster-growing businesses in the non-large space remains optimistic while the established leaders provide relative stability. 

Nippon India Multi Cap fund seeks to have a blend of both these segments – Established leaders and scalable faster growing emerging leaders and hence in our view it is well positioned to benefit from the anticipated domestic growth revival. Further, the investment across market caps also provides reasonable diversification potentially lowering volatility.

Also Read: Five MF myths that can mislead you

How this fund invests money 

Nippon India Multi Cap fund follows the philosophy of  ‘Growth at Reasonable Value; with a focus on identifying quality businesses with strong growth visibility. The investments are spread across areas like established business leaders, emerging scalable opportunities, out-of-favour themes (due to non-fundamental reasons) and non-traditional sectors which can scale up significantly over a period of time. The attempt is to take the ‘Right Risk’ without compromising on quality and invest early in the cycle to benefit meaningfully from the turnaround or revival. From an allocation perspective, the fund seeks meaningful participation across the market cap segments while maintaining adequate sector diversification.

(Sailesh Raj Bhan has been managing the Nippon India Multi Cap fund since its inception till date. Ashutosh Bhargava has been the co-fund manager since September 2021)

In what schemes/funds/stocks/companies this fund has invested

Currently, the fund is focused on domestic recovery-oriented themes like financials, Capex cycle revival (Engineering/Manufacturing/Infrastructure) and out-of-home consumption themes or in other words seeking to benefit from likely higher discretionary spending on normalization (Auto, Retail, Hospitality & Travel etc). Along with this, the fund has allocations to mispriced opportunities which currently are being ignored due to near-term challenges but remain fundamentally strong and offer rerating possibilities over the medium term.

Also Read: Large, Mid, Small, Multi or Flexi Cap MFs – which scheme had the highest AUM in July?

Advantages or disadvantages of multi-cap funds compared to large, small or mid-cap funds 

The key question in any investor’s mind always is “how much to allocate to each market cap – large, mid and small-cap categories as underlying conditions like valuations and macro conditions rapidly change. Multi cap funds seek to provide an automated solution, as they take away the challenges of allocation and the need for timing or frequent portfolio changes which can potentially reduce returns due to higher costs and timing mistakes.

Thus Multi Cap funds with investments across market segments can be considered as part of the core portfolio.

How many people have invested in this fund? 

The fund AUM was Rs 12,639 crores (as of July 31 2022). The fund has over 6.5 lakh investor folios.

Performance of Nippon India Multi Cap Fund vs peers. Source: Nippon India Mutual Fund

What are the risks investors should know before investing in this fund? 

While equities have demonstrated superior wealth creation possibilities over the long run, the volatility especially in the short term can be relatively higher. The fund being a pure equity offering will be subject to market volatility which can be managed by investing in a disciplined manner with a long-term time horizon. Since the fund invests across market cap segments any sharp divergence in one particular market cap segment may lead to a returns differential. However, as we have observed from the long-term history of the asset classes lot of this short-term volatility even out over a period of time and the asset class & the underlying fund strategies have managed to provide better inflation & risk-adjusted returns in the long run.

(The views expressed above are those of the Nippon India Multi Cap Fund’s fund manager. They do not reflect any official position or view of on mutual funds investment. Investing in a mutual fund is subject to market and other risks. Please consult your professional financial advisor before making any investment decision)

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