Where to invest in choppy times: Index and Multi-cap funds

Amid increasing uncertainty across social, political and economic fronts, it makes sense to invest in a combination of index funds and multi-cap funds. There are a few advantages.

One, index funds have a lower expense ratio. This reduces the cost of investing. Two, in the long run, key benchmark indices tend to provide returns proportionate to large-sized schemes. In the past 5- and 10-year periods, the Nifty50 index generated 11.6 per cent and 14.5 per cent returns, respectively; while large-sized equity (category average) funds have given 13 per cent and 15 per cent returns, respectively.

In the case of multi-cap schemes, investors derive the advantage of not being restricted to companies of specific sizes. The earnings growth is transpiring in select pockets. Besides, in multicap schemes, fund managers don't face the hurdle of valuation which can cap the potential of generating high returns.