Should investors seeking diversification go for multicap funds in 2026 amid market volatility? Expert weighs in
As markets navigate shifting macroeconomic dynamics, multicap funds are emerging as a preferred choice for investors looking to balance growth, stability, and risk. With exposure across large-, mid-, and small-cap segments, these funds offer diversification benefits and active sector rotation opportunities, making them attractive in an environment shaped by both domestic policy measures and global uncertainty.
“Multicap strategies allow investors to benefit from a dynamic allocation framework that adapts to changing market cycles,” said Sanjay Chawla, Chief Investment Officer of Baroda BNP Paribas Multicap Fund, told the Economic Times. “By investing across market capitalisations, we can capture growth opportunities in smaller companies while maintaining stability through large-cap exposure.”
The decision between equities and precious metals in 2026 is likely to remain nuanced. Precious metals continue to draw attention due to geopolitical uncertainties and central bank diversification away from the US dollar. Meanwhile, Indian equities are supported by strong fundamentals, including attractive valuations and earnings momentum, particularly within the broader Nifty index. “Asset allocation often matters more for wealth creation than individual stock picking,” Chawla explained. “Professional fund management can help investors navigate these choices more effectively.”
Investing in multicaps
Multicap funds inherently carry a higher risk profile than pure large-cap or mid-cap strategies, primarily due to their exposure to small-cap stocks. However, Chawla believes that this risk, when managed prudently, can lead to higher returns. “Investors seeking stability may opt for large caps, but those comfortable with more risk and flexibility often find multicap funds better suited to their objectives,” he said. “The ability to actively allocate across segments is a key advantage of professional management.”
Macroeconomic sentiment boosters, such as income tax cuts, GST rationalisation, and moderating inflation, are currently supporting consumption trends. Although these developments have yet to fully reflect in corporate earnings, they are laying the groundwork for stronger performance in consumer discretionary and staples sectors. “Policy measures are improving consumer sentiment, which should translate into stronger fundamentals over time,” Chawla noted.
Baroda BNP Paribas Multicap Fund
A disciplined investment approach underpins the performance of leading multicap funds. Baroda BNP Paribas Multicap Fund has delivered a 15%+ CAGR since inception, consistently outperforming its benchmark. “Our success is based on two core frameworks: the BMV model, which evaluates Business, Management, and Valuation, and the GARP principle—Growth at a Reasonable Price,” Chawla explained.
The fund typically maintains a balanced allocation of 40% large-cap, 30% mid-cap, and 30% small-cap stocks. This structure aims to provide stability during volatile periods while capitalising on growth opportunities in smaller companies. “Diversification is at the heart of our strategy. As small-cap companies mature, they can become significant alpha generators,” Chawla said.
Looking ahead, sector leadership is expected to evolve. Chawla remains optimistic about banking and financial services, manufacturing, infrastructure, and consumer-oriented platforms. “The financialisation of savings, supportive government policies, and monetary easing are creating a fertile environment for these sectors,” he said. “A disciplined sector and stock-picking approach enables us to adapt and deliver stable, risk-adjusted returns.”
Disclaimer: Business Today provides market and personal news for informational purposes only and should not be construed as investment advice. All mutual fund investments are subject to market risks. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.