Most new investors are in a fix while selecting the right mutual fund to invest in. Whether they should opt for large-cap or mid-cap or small-cap? Are multi-cap or sectoral funds ideal for investment? These are the questions that new investors may face when they begin to explore the world of mutual fund investments.
As a first step, investors must know about each of these categories along with some of their basic advantages and disadvantages. Important aspects like large-cap funds offer better stability to an investment portfolio, small-cap funds can provide exceptionally high returns while being risky, etc can be learnt before investing.
One fund category that needs to be explored by investors is multi cap funds. These offer considerable flexibility since they are diversified equity funds investing primarily in stocks of companies with varying market capitalizations. Here are some of the important details around multi cap funds to aid investors in their investment related decision-making process.
What is a Multi Cap Mutual Fund?
Multi cap funds are equity funds that primarily invest across different market capitalisations, various themes, and segments. These do not follow caps as far as portfolio exposure is concerned and are therefore categorised under high-risk funds. However, multi-cap funds are required to invest a minimum of 65% of total assets in equity and equity-related instruments.
Features of Multicap Mutual Funds
Some of the top features of multi-cap mutual funds are mentioned hereunder.
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Diversification
Multicap mutual funds have the inherent benefit of diversification where investors are offered the benefit of a diversified portfolio consisting of stocks across different sectors and market capitalizations. This is crucial in reducing the risk of investing in a single company or sector.
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Risk-return perception
Multicap funds aim to strike a balance between the risk and return perception of an investor. These funds offer potentially higher returns than large-cap funds while maintaining a lower risk profile than mid-cap or small-cap funds.
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Flexibility
Multicap funds have the flexibility to invest in stocks across different market capitalizations. This allows fund managers to take advantage of market opportunities in both large and small companies and enter and exit the securities with ease.
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Professional management
Multicap mutual funds are managed by professional fund managers who have the experience and expertise in selecting stocks across different sectors and market capitalizations. This is instrumental in meeting the aim of delivering superior returns to investors.
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Expense ratio
Multicap mutual funds usually have a moderate expense ratio as compared to investments in pure equity funds. This helps in reducing the cost of investment for investors which ultimately results in higher returns,
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Long-term investment horizon
Multicap mutual funds are suitable for investors with a long-term investment horizon. The usual investment horizon for investors in multi cap funds is 5 to 7 years which allows them to use the fund to meet their financial goals in a similar time frame.
Taxability of Multicap Mutual Funds
As per the SEBI classification of mutual funds, multi cap mutual funds are classified as equity mutual funds. Therefore, their taxation is in line with the taxation of equity mutual funds. The dividends received from the fund are taxed in the hands of the investors at their applicable slab rates.
Short-term capital gains are taxed at the rate of 15% while long term capital gains are taxed at a flat rate of 10% without the benefit of indexation. Investors, however, get the benefit of the exemption on long-term capital gains of up to Rs. 1,00,000 beyond which they are taxable in the hands of the investors.
How can multi cap fund investments benefit a portfolio?
Most mutual fund categories have restrictions regarding the investment types as defined in the fund objective. For instance, a large-cap fund cannot invest in mid and small-cap stocks to benefit from higher chances of profitability. Similarly, a mid-cap fund must invest only in mid and small-cap stocks even if there is a downturn in the market.
This is when multi-cap funds can act as a better choice for investors. Multi-cap funds can take advantage of various investment opportunities available in the market, thereby having better chances of enhanced returns. Investors can balance their portfolio’s risk-return element through low-risk investments in combination with multi-cap fund investments.
Who should invest in Multi Cap Funds?
Investors who are willing to take on higher risks and do not have sufficient time to independently research specific investments in the market can invest in multi-cap schemes. These are mainly helpful for long-term wealth creation. Multi-cap funds have higher chances of generating superior returns as compared to large-cap funds. However, these may offer lower returns as compared to mid and small-cap funds in the long run.
With multi-cap fund investments, investors can gain exposure to companies of varying sizes and reasonably diversify their portfolio.
What are the risks of investing in Multi Cap Funds?
Multi-cap funds may also invest in mid-cap and small-cap stocks and are therefore considered riskier when compared to large-cap schemes. During a market upswing, fund managers of multi-cap funds may increase exposure to mid and small-sized companies to maximise benefit from earnings. Similarly, fund managers may also switch from mid-cap companies to large-cap companies during prolonged market downturns. Thus, multi-cap fund investments pose higher volatility and higher risk for an investor.
Top Performing Multi Cap Funds to Invest in 2023
Some of the top performing high risk mutual fund recommendations for 2023 are:
Invesco India Multicap Fund
About the Fund
The fund aims to achieve long-term capital appreciation through investments in equity and equity-related securities of large, mid and small companies. The fund adopts a bottom-up investment approach for stock selection across the market capitalization range.
| Inception Date | March 17, 2008 |
| Benchmark Name | Nifty 500 Multicap 50:25:25 Total Return Index |
| Fund Manager | Mr. Amit Nigam and Mr. Pranav Gokhale |
| Expense Ratio | 2.03% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
|
6-month |
1-Year |
3-Year |
5-Year |
10-year |
|
14.84% |
0.99% |
19.17% |
9.74% |
16.62% |
Quant Active Fund
About the Fund
The scheme aims to offer investors long-term capital appreciation and regular income by setting up and maintaining a diversified portfolio including stocks of large-cap, mid-cap and small-cap companies. It is ideal for investors looking at a 3-4 year investment horizon with high return expectations and low to moderate risk tolerance.
| Inception Date | March 21, 2001 |
| Benchmark Name | Nifty 500 Multicap 50:25:25 Total Return Index |
| Fund Manager | Sanjeev Sharma |
| Expense ratio | 2.63% |
| Fund type | Open-ended |
| Risk | Low to moderate |
Historical Returns of the Fund (annualised)
|
6-month |
1-Year |
3-Year |
5-Year |
10-year |
|
18.90% |
10.77% |
36.11% |
21.73% |
20.55% |
Conclusion
Investing in multi-cap funds can save investor’s time and efforts of switching exposure across different equity fund categories during changing market scenarios. An investor can enjoy the expertise of a fund manager of a multi-cap fund who can make investment decisions based on market conditions while ensuring maximum returns for investors.
FAQs
- What is a multi cap fund?
Multi cap mutual funds invest in stocks of companies with different market capitalisations. These invest in small-cap, mid-cap and also large-cap companies. The fund switches between investments depending on market movements.
- Are multi cap funds good investments?
Multi-cap fund investments can help in diversifying a portfolio through exposure to stocks of different market capitalisations or company sizes. These make the most of market movements and expected fluctuations and are therefore beneficial for opportunistic investors.
- How to invest in multi-cap mutual funds?
To invest in multi-cap mutual funds, an investor can download the Fisdom app on his/her smartphone. The app suggests top-rated mutual funds as per investment preference and other criteria. It allows a seamless investment process, especially for new investors.
- How risky are multi-cap mutual fund investments?
Multi-cap mutual funds fall under the high-risk category since these have exposure to companies of all market capitalisations or sizes.
- How to choose a multi-cap mutual fund?
Investors must consider the below-mentioned points while selecting the right multi-cap mutual fund for investment:
- Historical performance of the mutual fund
- Expense ratio (lower the better)
- AMC / Mutual fund house’s market standing and performance
- Fund manager’s expertise and experience
- Personal investment goals measured against fund objective
