Multi Cap Funds: What are Multicap Mutual Funds, Features & Benefits

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

Additional Read: 7 reasons to invest in Mutual Funds

What are 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. 

How does Multi-cap Funds work?

Different types of Multi-Cap Funds:

• Large-Cap Focused: These funds play it safe by investing more money in established companies. Thus, large-cap funds are recommended for those who prioritize stability.

• Mid/Small-Cap Focused: These funds focus on high growth. They put more emphasis on companies with room to grow, but also carry more risk.

• No Specific Focus: This type of funds invests across all sizes, aiming to find the best opportunities wherever they lie. Offers a mix of risk and return.

What are the taxation rules of multi-cap mutual funds

Multi-cap funds offer diversification, but here's how the profits are taxed:

• Holding Period: Taxes depend on how long you hold your investment.

• Short-Term (Less than 1 year): Profits are considered short-term capital gains and taxed at a flat 15%.

• Long-Term (More than 1 year): Here's the good news! Up to Rs. 1 lakh of long-term capital gains are tax-exempt each year.

• Long-Term Gains Exceed Rs. 1 Lakh: Any profit exceeding this limit is taxed at 10% (without inflation adjustment).

• Dividends: Fund houses deduct a Dividend Distribution Tax (DDT) of 10% before paying you dividends.

List of Multi Cap Mutual Funds

Here is a list of some popular Multi Cap Mutual Funds in India for 2024:

1. ICICI Prudential Multi Cap Fund
2. HDFC Multi Cap Fund
3. Axis Multi Cap Fund
4. Kotak Multi Cap Fund
5. SBI Multi Cap Fund
6. UTI Multi Cap Fund
7. Aditya Birla Sun Life Multi Cap Fund
8. Nippon India Multi Cap Fund
9. Tata Multi Cap Fund
10. DSP Multi Cap Fund

How to invest in a Multi Cap Mutual Fund?

Multi-cap funds offer a mix of stability and growth potential. Here's how you invest in them:

1. Choose Your Platform: Open an investment account with a bank or an online broker.

2. Research & Pick a Fund: Look for one that aligns with your risk tolerance and investment goals. Use online resources to compare options.

3. Decide on Investment Type: Choose between a lump sum investment (one-time) or a Systematic Investment Plan (SIP) for regular smaller investments.

4. Start Investing: Once you've chosen your fund and investment type, initiate the transaction through your chosen platform.