Nippon India Multi Cap Fund: 17.4% CAGR Since 2005, Low Turnover

SEBI's February 2021 multi-cap mandate requires at least 25% each in large-, mid-, and small-cap stocks. Of the 32 schemes in the category, only two – from Invesco and Nippon India – held a portfolio structure broadly aligned with the rule for more than seven years before it became formal.

Nippon India Multi Cap Fund (NMCF) has delivered the highest five-year return among multi-cap funds, with ₹53,411 crore in assets. Even before SEBI's 2021 rule, the fund kept 16-25% in small-caps while allocating at least a quarter each to large- and mid-cap names.

Launched in March 2005, NMCF has returned a compounded 17.4% annually since inception. Sailesh Raj Bhan has managed the fund from day one, providing two decades of continuity.

The fund evaluates investments on a three- to five-year horizon and often holds quality businesses longer. Its portfolio turnover ratio is about 29%, one of the lowest in the category, where the average runs near 80%. SBI and Infosys have stayed in the portfolio for nearly 20 years.

Stock selection rests on three pillars: business quality, management quality, and valuation. The fund targets companies with durable competitive advantages, capable management, and strong governance. It avoids businesses where future growth expectations are already priced in.

A key metric is return on equity (RoE). The fund prefers companies that can sustain or reach 15-20% RoE over the medium term, funding growth internally and limiting shareholder dilution.

NMCF also takes contrarian positions, looking at sectors where valuations have been compressed by temporary external factors rather than fundamental deterioration. It seeks under-owned stocks where investor interest has faded despite improving earnings.

Portfolio construction keeps 40-45% in large-caps, 25-30% in mid-caps, and 25-30% in small-caps. Multi-cap funds typically hold more stocks than other equity categories, especially in small-caps, to manage stock-specific and liquidity risk. WhiteOak Capital Multi Cap Fund and ICICI Prudential Multi Cap Fund held 179 and 162 stocks respectively as of May 2026. NMCF owns 123 stocks, 58 of them small-cap.

The fund manager approaches small-cap investing with a long-term lens, often holding positions for several years. Many companies now classified as small-caps have market capitalisations above ₹10,000 crore, making them more liquid than traditional small-cap names. NMCF puts 80-90% of its small-cap allocation into companies above that threshold; exposure below ₹5,000 crore accounts for less than 5% of the overall portfolio.

Currently, the fund is overweight on private sector banks, pharmaceuticals, consumer discretionary, and power. The fund manager finds private sector banks attractive because sustained foreign institutional selling over the past two years has depressed valuations. The fund is selectively underweight on IT services and metals. Its largest sector exposures are banks, retailing, and electrical equipment. Over the past year, allocations to pharmaceuticals, retailing, and consumer durables have increased, while exposure to finance, capital markets, and banks has been trimmed.

Over rolling five-year periods in the past seven years, NMCF delivered an average annualised return of 26%, compared with 22% for the Nifty500 Multicap 50:25:25 TRI. Annualised returns across those periods ranged from 18% to 36%. On a three-year rolling basis, the fund averaged 25%, ahead of the category average of 21%.

The regular plan charges 1.43% in expenses, below the category average of 1.93%. The direct plan's 0.72% is also slightly under the category average of 0.77%.

Multi-cap funds suit investors who want a single equity fund with exposure across market-cap segments. The mandated allocation provides large-cap stability while capturing mid- and small-cap growth potential. The compulsory small-cap exposure can create more volatility than flexi-cap funds during downturns. A five- to seven-year horizon is appropriate, ideally through systematic investment plans.

The multi-cap category has been excluded from bl.portfolio's MF star rating framework because only two schemes have a seven-year track record while adhering to the mandate.