All Cap Fund: What it means, how it works, and its benefits

If you're new to the world of mutual funds and looking for a way to grow your money, you might come across something called an all-cap fund. At first, the name might sound a bit confusing. But when explained, it’s actually very easy to understand.
In this article, we’ll take a closer look at the meaning of an all-cap fund, how it works, its features, and why it might be a suitable option for your investment portfolio.

• Table of contents

• What is an all-cap fund?
• Understanding all-cap funds with an example
• Features of all-cap funds
• Objectives of all-cap funds
• Benefits of investing in all-cap funds
• How to choose an all-cap fund
• Potential risks and considerations of all-cap funds

What is an all-cap fund?

An all-cap fund is a type of mutual fund that invests in companies of all sizes–small, medium, and large. ‘Cap’ in the term stands for ‘market capitalisation’, which refers to the total value of a company’s shares. While "All Cap Fund" is not an official mutual fund category as per SEBI’s classification, investors sometimes use this term informally to refer to funds like flexi cap or multi cap funds, which invest across large-cap, mid-cap, and small-cap companies.

So, an all-cap fund can invest in:

• Large-cap companies (big and stable)
• Mid-cap companies (growing companies)
• Small-cap companies (new or smaller businesses)

Because it covers all sizes, an all-cap fund gives you a balanced and diversified portfolio. The fund manager has the freedom to shift investments between different types of companies depending on market trends. This means your money is spread across a wide range of businesses, mitigating risk and increasing the potential of better returns. It also allows the fund to adapt to changing economic conditions, which can help improve overall performance over time.

Read Also: Thematic Investment Funds: Meaning, Features & How To Invest?

Understanding all-cap funds with an example

Let’s say you invest Rs. 5,000 in an all cap fund.

Here’s how it might get split:

• Rs. 2,500 could go into large-cap stocks
• Rs. 1,500 might be invested in mid-cap companies
• Rs. 1,000 could be put into small-cap companies

The fund manager decides how much to invest in each type, based on where they see the best opportunity. This flexibility is what makes all-cap funds special.

Features of all-cap funds

Here are some key features of an all-cap fund:

• Flexible investing: Can invest across large, mid, and small companies.
• Actively managed: Fund managers shift money as per market conditions.
• Balanced approach: A mix of stability (large-caps) and growth (mid and small-caps).
• Diversification: Reduces the risk of investing in just one category.
• Suitable for long-term goals: Works well if you stay invested for 5+ years.

All-cap funds are also able to quickly adapt to changing market trends. If one part of the market is not doing well, the fund manager can move investments to other promising sectors or company sizes. This active strategy helps balance risk and return. Whether the market is going up or down, the flexibility of an all-cap fund allows it to take advantage of opportunities and minimise losses. These features make all-cap funds suitable to a wide range of investors, especially those who want both growth and stability.

Objectives of all-cap funds

The main objectives of all-cap funds include:

• Capital growth: To grow your money over time by investing in high-potential companies.
• Risk management: Balancing risk by spreading money across different types of companies.
• Opportunistic investing: The freedom to move between sectors and sizes based on market opportunities.
• Relatively stable long-term returns: Aim to deliver steady returns over the long run.

These funds try to make the most of market trends without being tied to a specific size or sector.

Read Also: Opportunity Funds: Meaning, Benefits & How to Invest?

Benefits of investing in all-cap funds

Let’s now look at the benefits of all-cap fund investing:

• One-stop diversification: You get exposure to all types of companies with one investment.
• Growth potential: Mid and small-cap stocks may offer relatively high returns in the long run.
• Stability from large caps: Large-cap stocks help reduce overall risk.
• Active management: Fund managers shift focus based on market changes.
• Convenience: No need to choose separate large-cap, mid-cap, and small-cap funds.

So, instead of trying to figure out which fund to pick, you can just go with an all-cap fund for a balanced mix.

How to choose an all-cap fund

Here are a few simple tips to help you choose the right all-cap fund:

1. Check the fund’s past performance: See how it has performed over 3, 5, or 7 years. Compare it with similar funds and the benchmark.
2. Look at the fund manager’s experience: A skilled and experienced manager makes a big difference.
3. Check the expense ratio: A lower expense ratio means lower fees on your returns.
4. Understand the fund’s portfolio: Check how much is invested in large, mid, and small caps.
5. Know your risk appetite: If you can handle some ups and downs, all-cap funds are suitable.

You can also use online mutual fund platforms or speak to a financial advisor to help make your choice.

Potential risks and considerations of all-cap funds

Like all mutual funds, all-cap funds come with some risks. It’s important to understand them:

• Market risk: If the market falls, your investment may go down too.
• Volatility: Mid and small caps can be more volatile than large caps.
• Fund manager risk: The performance depends on how smartly the fund is managed.
• Short-term fluctuations: These funds may work relatively better if held long-term.

So, while the benefits of all-cap fund investing are many, it’s important to remember that it’s not risk-free. But with patience and a long-term view, the risks can be balanced out.

Conclusion

An all-cap fund can give you a mix of big, mid-sized, and small companies in one place. It’s flexible, diversified, and aims to grow your money over time. If you're looking for a simple way to invest in the stock market without picking individual stocks or different funds, an all-cap fund might be a suitable choice. It’s especially good for long-term investors who want both stability and growth, all rolled into one.

FAQs

What is an all-cap fund?

An all-cap fund is a mutual fund that invests in companies of all sizes (large-cap, mid-cap, and small-cap), giving you a balanced and diversified portfolio.

How does an all-cap fund differ from other funds?

Unlike funds that invest only in one category (like just large-cap or small-cap), all-cap funds can move freely across all company sizes. This gives them more flexibility and potential for better returns.

What are the benefits of investing in an all-cap fund?

The main benefits include diversification, growth potential, stability from large companies, and the convenience of investing in all market caps through one fund.

What are the risks associated with all-cap funds?

Risks include market ups and downs, volatility from small- and mid-cap stocks, and performance depending on the fund manager’s decisions. It's suited for long-term investors.

Who should consider investing in an all-cap fund?

All-cap funds are good for investors looking for long-term growth with moderate risk. They're suitable for those who want one fund that gives exposure to the full market.

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