Multi-Cap Funds are a category of mutual funds. They pool money from investors and spread it across companies of all sizes - big, medium, and small. It's like having a diverse portfolio that covers the whole spectrum of the market.
EXPLORE FUNDS
What are Multi-cap Funds
EXPLORE FUNDS
4 mins
17-May-2024
Multi-cap funds have emerged as versatile and strategic investment options. These funds provide investors with the flexibility to navigate across different market capitalisations, offering exposure to a diverse range of stocks. Understanding multi-ap funds is paramount for investors seeking a balanced and diversified portfolio. This article delves into the intricacies of multi-cap funds, exploring their features, benefits, and considerations to empower investors with the knowledge needed to make informed financial decisions.
What are multi-cap funds?
Multi-cap fundsare a category of mutual fund that invest across various market capitalisations, including large-cap, mid-cap, and small-cap stocks. This diverse approach allows fund managers to adapt to changing market conditions, allocating assets strategically based on prevailing opportunities. By providing a well-rounded portfolio, multi-cap funds aim to balance risk and returns, making them suitable for investors with varying risk appetites and investment horizons. This flexibility enables investors to capitalise on market trends and benefit from a dynamic investment strategy that adapts to the evolving economic landscape.
How does a multi-cap mutual fund work?
By law, mutual funds must adhere to specific investment strategies. For instance, a large-cap fund is restricted to investing in the equities of the top 100 market capitalisation companies, while small-cap funds focus on those below the 250 mark, and so forth.
In contrast, the multi-cap category lacks a regulatory framework dictating the size and sector of companies it can invest in. Consequently, these funds allocate investments across large, mid, and small-cap equities, with the proportions subject to change at the discretion of fund management.
Fund managers evaluate market conditions and adjust the allocation of large-cap, mid-cap, and small-cap companies in a multi-cap mutual fund's portfolio accordingly. During periods of economic expansion, managers may increase exposure to mid-cap and small-cap stocks to harness their rapid growth potential. Conversely, during economic slowdowns, they might bolster exposure to large-cap stocks.
Features of a multi-cap fund
Characteristic | Description |
Management | Multi-cap funds invest in equity and equity-related instruments across various market capitalisations. Fund managers actively seek opportunities to diversify investments to meet scheme objectives, making their role pivotal in the scheme's success. |
Risk | Multi-cap funds inherently invest in stocks from large-cap, mid-cap, and small-cap companies, thus carrying more risk compared to large-cap schemes, which predominantly invest in established large companies. |
Horizon | Multi-cap funds typically maintain a long-term investment horizon. Investors with an objective of wealth creation over the long term and a moderate risk tolerance may find multi-cap mutual funds suitable for their investment goals. |
Why should you invest in multi-cap funds?
Here are some key points explaining why you should consider investing in multi-cap funds:
- Diversification: Multi-cap funds provide exposure to companies across different market capitalisations, offering diversification within a single fund.
- Flexibility: These funds allow fund managers the flexibility to adjust allocations across large-cap, mid-cap, and small-cap stocks based on market conditions.
- Growth potential: By investing in companies of varying sizes, multi-cap funds can capture growth opportunities across different segments of the market.
- Risk management: The diversified nature of multi-cap funds can help mitigate risk compared to investing solely in one segment of the market, such as large-cap stocks.
- Long-Term investment: With a long-term investment horizon, multi-cap funds are suitable for investors looking to create wealth over time while accepting moderate risk levels.
- Active management: Fund managers actively manage multi-cap funds, aiming to identify undervalued stocks and capitalise on market trends to enhance returns.
- Market participation: Investing in multi-cap funds allows investors to participate in the entire spectrum of the equity market, from large, established companies to smaller, emerging ones.
Types of multi-cap funds
Multi-cap funds can be classified into three types based on their investment strategy:
- Large-cap focused multi-cap funds: These funds allocate more than 25% of their assets to large-cap equities. They are useful for adding stability and balance to a portfolio, especially when markets are falling.
- Mid-cap focused multi-cap funds: With a more aggressive strategy and larger exposure to mid-cap and small-cap equities, these multi-cap funds aim to generate strong returns.
- No specific focus multi-cap funds: Apart from the mandated 25% investment in each capitalisation, these multi-cap funds do not target any specific categories. Fund managers concentrate on firms that have the potential to outperform and invest in shares across all sectors.
Top performing funds
Equity
Debt
Hybrid
Tax saver
View All
View all
Taxation rules of multi-cap mutual funds
Investing in multi-cap mutual funds offers diversification benefits, but tax implications are important to consider. Here's a breakdown of the two main taxes you might encounter:
- Capital Gains tax: This tax applies to the profits you earn when you redeem your multi cap fund units. The tax rate depends on how long you held the investment:
- Short-Term Capital Gains (STCG): If you sell your units within one year of purchase, the gains are considered STCG and taxed at a flat rate of 15%.
- Long-Term Capital Gains (LTCG): Investments held for more than a year qualify for LTCG benefits. Up to Rs. 1 lakh of LTCG earned in a financial year is exempt from tax. Any LTCG exceeding this limit is taxed at 10% without indexation (a factor that adjusts for inflation).
- Dividend Distribution Tax (DDT): Multi-cap funds may pay out dividends from the underlying company profits. These dividends are subject to a Dividend Distribution Tax (DDT) of 10% deducted by the fund house before distributing them to you.
By understanding these taxes, you can make informed investment decisions and potentially minimise your tax burden. Remember, consulting a financial advisor can provide personalised tax advice based on your specific situation.
When to invest in multi-cap funds
Multi-cap mutual funds are ideal for investors who want to diversify their portfolio across different market capitalisations and sectors. It is ideal to have a long-term investment horizon of 5+ years if one wishes to invest in multi-cap funds.
Risks associated with multi-cap funds
Multi-cap funds are considered to have a moderate risk-return profile. When markets are rising, they can outperform large and mid-cap funds. They also collect good gains from small-cap equities during market surges. However, since these schemes also invest in mid-cap and small-cap stocks, they are riskier than large-cap schemes that invest mostly in large companies.
Factors to consider before investing in a multi-cap fund
Before investing in a multi-cap fund, consider the following factors:
- Fund manager’s performance: The fund manager plays a crucial role in the performance of multi-cap mutual funds. Look for a fund manager with a proven track record of managing multi-cap funds.
- Portfolio: Check if the fund is too concentrated in a few stocks or sectors. A well-diversified portfolio can help reduce risk.
- Tax implications: Multi-cap mutual funds attract two types of taxes:
- Capital gains tax:If you sell your units before one year from the date of purchase, short-term capital gains tax will apply at 15%. If you sell your units after one year from the date of purchase, long-term capital gains tax will apply at 10% (without indexation) . Cess and surcharge as applicable shall be levied on the tax amount.
Read more: What is portfolio diversification.
Conclusion
In conclusion, multi-cap mutual funds offer investors an opportunity to diversify their portfolio while taking the advantage of changing market conditions to get better returns on their money. However, before investing, it is important to consider the various risks and benefits associated with these funds, and thus make an informed choice.
Calculate your expected investment returns with the help of our investment calculators
Investment Calculator | ||
Mutual Fund Calculator | SIP Calculator | Lumpsum Calculator |
Step Up SIP Calculator | Brokerage Calculator | FD calculator |
Frequently asked questions
Are multi-cap funds the same as Flexi-cap funds?
Multi-cap funds and Flexi-cap funds are similar but not identical; while both invest across market capitalizations, Flexi-cap funds have more flexibility in adjusting their portfolio allocations.
Should novice investors invest in multi-cap funds?
Novice investors may consider multi-cap funds as they provide diversification across different market segments, offering exposure to large-cap, mid-cap as well as small-cap stocks, allowing for a balanced investment approach.
Why not invest in one capitalisation rather than multi-cap funds?
Investing in one capitalisation may expose investors to higher risks, as concentration in a single market segment lacks diversification. Multi-cap funds mitigate this risk by spreading investments across various market caps.
Is it safe to Invest in a Multi-cap Fund?
Investing in a multi-cap fund can be relatively safe, provided investors carefully choose funds with a consistent track record, reputable fund managers, and align with their risk tolerance and financial goals.
What is the minimum amount to invest in Multi-cap Funds?
The minimum amount to invest in multi-cap funds varies across fund houses but is generally affordable, starting for as low as Rs. 100, making it accessible for a broad range of investors.
Can we redeem Multi-cap Funds anytime?
Yes, multi-cap funds offer the flexibility to redeem investments at any time, providing liquidity to investors who may need to access their funds based on changing financial needs.
Is there any tax on Multi-cap Funds?
Certainly, capital gains taxes are applicable to profits generated from Multi-cap Funds based on the investment horizon. For investments held for less than one-year, short-term capital gains taxes of 15% on the gain are levied. Conversely, investments exceeding one year attract long-term capital gains taxes at a rate of 10% on gains exceeding Rs. 1 lakh annually.
Is it the right time to invest in a mid-cap fund?
Mid-cap funds offer growth potential but carry higher volatility than large-cap funds. Market conditions and your investment horizon should be considered when deciding if a mid-cap fund is suitable for you currently.
Which multi-cap fund is best in 2024?
There's no single "best" multi-cap fund. The best choice depends on your risk tolerance, investment goals, and investment timeframe. Researching and comparing multiple funds is recommended.
Who should invest in a multi-cap fund?
Multi-cap funds are suitable for investors seeking diversification across large, mid, and small-cap companies. They are typically a good fit for investors with a long-term investment horizon who can tolerate some market fluctuations.
Show More Show Less
Bajaj Finserv App for All Your Financial Needs and Goals
Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.
You can use the Bajaj Finserv App to:
- Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
- Explore and apply for co-branded credit cards online.
- Invest in fixed deposits and mutual funds on the app.
- Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
- Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
- Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on No Cost EMIs.
- Shop from over 100+ brand partners that offer a diverse range of products and services.
- Use specialised tools like EMI calculators, SIP Calculators
- Check your credit score, download loan statements and even get quick customer support—all on the app.
Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.
Do more with the Bajaj Finserv App!
UPI, Wallet, Loans, Investments, Cards, Shopping and more
Disclaimer:
Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319
BFL does NOT:
(i) provide investment advisory services in any manner or form:
(ii) carry customized/personalized suitability assessment:
(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.
In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.
Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.
Disclaimer on Risk-O-Meter:
Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.
© Bajaj Finserv 2007-2024. All rights reserved.
