Nippon India Multi Cap Fund: A Long-Term Performer with High Returns

The multi-cap fund category has emerged as a popular choice among investors, with 32 schemes available in the market. Among them, Nippon India Multi Cap Fund (NMCF) has stood out as a strong performer, delivering the highest five-year return among multi-cap funds.

Nippon India Multi Cap Fund: A Long-Term Performer

Launched in March 2005, NMCF has built a two-decade track record of returns, delivering a compounded annualised return of 17.4 per cent since inception. The fund has also benefitted from continuity in management, with Sailesh Raj Bhan at the helm since launch.

The fund’s investment approach focuses on evaluating investments with a three- to five-year horizon and often holds quality businesses for much longer, resulting in a portfolio turnover ratio of about 29 per cent, one of the lowest in the category.

Investment Approach: A Three-Pillar Framework

The fund’s stock selection is guided by three pillars: Business quality, management quality, and valuation. The fund seeks companies with durable competitive advantages, capable management teams, and strong governance standards.

The fund also adopts a contrarian lens, identifying sectors and companies where valuations have been compressed by temporary external factors rather than a deterioration in fundamentals.

Portfolio Construction and Small-Cap Allocation

• The fund combines large-, mid- and small-cap stocks, with a strong emphasis on bottom-up stock selection and compounding.
• Over the years, the fund has broadly maintained 40-45 per cent allocation to large-caps, 25-30 per cent to mid-caps, and 25-30 per cent to small-caps.
• The fund’s small-cap allocation is approached with a long-term perspective, with holdings often retained for several years to allow businesses to realise their potential.

Key Takeaways

• NMCF has delivered the highest five-year return among multi-cap funds, with a compounded annualised return of 17.4 per cent since inception.
• The fund’s investment approach focuses on evaluating investments with a three- to five-year horizon and often holds quality businesses for much longer.
• The fund’s small-cap allocation is approached with a long-term perspective, with holdings often retained for several years to allow businesses to realise their potential.

FAQs

What is the fund’s expense ratio?

The regular plan carries an expense ratio of 1.43 per cent, lower than the category average of 1.93 per cent. The direct plan’s expense ratio of 0.72 per cent is also marginally below the category average of 0.77 per cent.

What is the fund’s investment horizon?

Investors should have an investment horizon of at least five-seven years and preferably invest through systematic investment plans to ride the market cycles.

What is the fund’s sector exposure?

The fund is overweight on private sector banks, pharmaceuticals, consumer discretionary businesses, and the power sector. The fund manager finds private sector banks particularly attractive, noting that sustained foreign institutional investor selling over the past two years has depressed valuations.

Conclusion

NMCF has emerged as a strong performer in the multi-cap fund category, delivering the highest five-year return among multi-cap funds. The fund’s investment approach focuses on evaluating investments with a three- to five-year horizon and often holds quality businesses for much longer. Investors seeking a single equity fund with exposure across large-, mid- and small-cap segments may find NMCF to be a suitable option. However, investors should have an investment horizon of at least five-seven years and preferably invest through systematic investment plans to ride the market cycles.