Sensex 80,000: Introducing the New Franklin Templeton Multi Cap Fund

Market highs are not deterring mutual funds from introducing new schemes. On the day the S&P BSE Sensex reached the 80,000 mark for the first time, Franklin Templeton India Mutual Fund unveiled a new equity scheme. Named Franklin India Multi Cap Fund (FMCF), this diversified fund invests in stocks across large-cap, mid-cap, and small-cap categories. Despite being relatively new, the multi-cap segment is already crowded, with 24 schemes collectively managing a corpus of ₹1.39 lakh crore, according to ACE MF data.

Here are four points to know about this fund:

Diversified, but Multi-cap:

As a multi-cap fund, this fund is required to maintain a significant presence across all three segments—large-cap, mid-cap, and small-cap—by investing a minimum of 25% in each. The remaining 25% can be allocated to any segment at the fund's discretion. In November 2020, the Securities and Exchange Board of India (SEBI), the capital market regulator, introduced a new category of funds known as the flexi-cap category.

Schemes in the flexi-cap category can invest in large-caps, mid-caps, and small-caps in any proportion they choose, unlike a multi-cap fund, which has a minimum investment threshold for each category. Since Franklin Templeton India’s existing scheme, Franklin India Flexi Cap Fund, was categorized as a flexi-cap fund, the company did not have a multi-cap fund. The fund house has now addressed this gap by launching the Franklin India Multi Cap Fund (FMCF).

Most flexi-cap funds tend to favor large-cap stocks. An analysis of the latest portfolios of flexi-cap funds reveals that, on average, they allocate 58% to large-cap stocks, 19% to mid-cap stocks, and approximately 17% to small-cap stocks.

Small caps can give you a taste of new sectors

R. Janakiraman, Chief Investment Officer at Franklin Templeton India Asset Management, emphasizes the promising investment opportunities in the small-cap segment that should not be overlooked. He highlights the significant increase in listed digital companies across seven sectors—Retail, Food Technology, Software, Insurance, Fintech, Social/Media, and Logistics—between 2018 and 2023, sectors which were nearly nonexistent in 2018. Additionally, from 2020 to 2023, there were over 100 Initial Public Offerings (IPOs), with only 3% of these issuances in the large-cap space, while the remainder were in the small- and mid-cap segments.

Nifty 500 versus Nifty 500 Multicap

The benchmark index for the Franklin India Multi Cap Fund (FMCF) is the Nifty 500 Multicap 50:25:25 index. This index allocates 50% to large-cap stocks, and 25% each to mid-cap and small-cap stocks, closely aligning with the typical investment strategy of multi-cap funds. 

Conversely, the Nifty 500 index allocates approximately 70% to large-cap stocks. Most flexi-cap schemes tend to align with this level of large-cap allocation. Flexi-cap schemes offer more flexibility, allowing them to invest in and switch between different market segments as needed.

Both multi-cap and flexi-cap funds provide diversification across large-cap, mid-cap, and small-cap stocks. However, if you already have substantial exposure to large-cap stocks, it might be more advantageous to choose multi-cap funds. This is because multi-cap funds are required to invest at least 25% in small-cap stocks, 25% in mid-cap stocks, and 25% in large-cap stocks. The fund manager has the discretion to allocate the remaining 25% as they see fit.

Large, mid, small: No clear winner

Although mid-cap and small-cap stocks tend to be more volatile than large-cap stocks, there is no consistent winner on a year-to-year basis, according to an analysis by Franklin Templeton. Examining calendar year returns from 2006 to 2023, the fund house found that large-cap stocks (represented by the Nifty Large-Cap 100 index) outperformed in seven calendar years.

Mid-cap stocks, represented by the Nifty Midcap 150 index, outperformed in three years, while small-cap stocks, represented by the Nifty Smallcap 250 index, outperformed in seven years. Experts suggest that this variability indicates a multi-cap fund can be a beneficial choice if you prefer to have fewer funds in your portfolio, as it provides balanced exposure to all three segments.