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What Are Multi-Cap Funds? Their Features and Advantages Explained

7 Mins 18 Apr 2022 0 COMMENT


The decision to invest in a mutual fund includes many factors. Your risk appetite, investment horizon and investment goals all factor into the final decision making. Mutual funds that invest based on market capitalisation of companies cater to investors with different risk profiles. 

Small-cap mutual funds usually provide aggressive returns but are highly risky. Mid-cap mutual funds are less riskier than small-cap funds but offer lower returns in comparison. Large-cap funds are the least risky of them all. 

If you want to combine the advantages of all these mutual fund categories into one, there’s another kind to consider – multi-cap mutual funds. 

Additional Read: 7 reasons to invest in Mutual Funds

Defining Multi-Cap Funds 

Multi-cap funds are equity mutual funds that invest most of their money in stocks of companies with different market caps. They invest in large-cap companies, mid-cap companies and small-cap companies. The proportion in which they invest in these different companies depends on the fund manager’s objective. 

Features of Multi-Cap Funds 

1. Diverse Investments 

Multi-cap funds must invest at least 65% of their money in company stocks. However, unlike mutual funds with a market cap focus, such as large-cap or mid-cap funds, multi-cap funds have the freedom to invest in companies of different market caps. This gives you exposure to diverse stocks as an investor. 

2. Risk Management 

Since multi-cap funds include stocks from companies of different sizes and sectors, they diversify risk effectively. Fund managers can change the allocation of funds among these companies depending on the prevailing market conditions. These mutual funds are good investment options for investors with medium risk tolerance. 

3. Flexibility to Fund Managers 

Multi-cap fund managers have the freedom to rejig the portfolio depending on how different companies in the market are performing. This allows them to identify growth opportunities and make prudent investments that give the best returns possible. 

4. Fund Manager’s Expertise is Important 

The fund manager’s expertise and vision highly affect these mutual funds. Since the fund manager decides how to allocate large-cap, mid-cap and small-cap mutual funds, you must check the fund manager’s performance history and vision to ensure it aligns with yours. 

Benefits of Multi-Cap Funds

1. The Advantage of Diversification 

Different companies perform differently under different market conditions. A multi-cap fund invests in various companies of different sizes across different industries. As an investor, this lets you diversify your risks and returns. 

2. Better Risk-Adjusted Returns 

Unlike single cap funds, whose returns may fluctuate with different market conditions, multi-cap funds can effectively control the risk-adjusted returns by tweaking the investment ratio according to what works. 

3. Professional Management 

Fund managers make or break the performance of multi-cap funds. You benefit from their expertise and investment judgment when you choose to invest in a fund with an experienced fund manager. You don’t have to worry about monitoring the market because the fund manager will automatically readjust the portfolio according to the market conditions. 

Who Should Invest in Multi-Cap Funds?

Investors who cannot choose whether they want exposure to large-cap, mid-cap or multi-cap companies can benefit from investing in multi-cap funds because it provides exposure to all these kinds of companies. It is also suitable for novice investors since it offers automatic diversification. Much like other mutual funds, it is best to stay invested in the long run to reap its benefits.

Additional Read: A Guide to Selecting the Best Mid-cap Fund


When it comes to making intelligent investments, diversification is critical. Multi-cap funds provide in-built diversification benefits and risk mitigation for investors who want high returns but want to minimise risks. Reach out to your AMC or broker to begin investing in multi-cap mutual funds. 

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