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How are multicap funds different from value and contra funds?

Dhirendra Kumar tells the basic difference between value, contra and multicap funds

Which is better among contra, value and multi-cap funds? What should be the time horizon?
-Anand

You should have a time horizon of at least 5 to 6 years. All these categories are good. They invest in equity but have a different strategy. Most multi-cap funds will be growth-oriented. They'll be investing in companies which are likely to go up in value because the companies are growing. It may not be cheap.

Value funds target to invest in those companies which are out of favour and are available at discount. So, it's completely about buying cheap. In contra strategy, the companies may not be cheaper, but there could be special situation companies which are out of favour for some reason and the market is unwilling. It could be a turnaround situation.

So, these fund managers follow a different style of investing. I would say that they all fit into a portfolio. I would say that invest a third of your money in a value fund and invest 2/3 of your money in one multicap fund. That will do the job. If you are investing a large sum of money, maybe two multicap funds and one value fund will do the job. A third of money in value fund will work because different segments of the market do well at different points of time. This is another level of diversification which investors should be aware of.

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