What are Multi Cap Mutual Funds?

Multi-cap funds invest in companies of varying sizes and industries. Unlike large-cap or mid-cap funds, they have the flexibility to allocate funds across large, mid-sized, and small companies. This adaptability allows them to adjust their portfolio based on shifting market conditions.

Advantages of Multi Cap Funds

  • Provides exposure to all major sectors propelling India’s economic growth.
  • Best suited for a long-term investment horizon of 5+ years.
  • Eliminates the need to invest in multiple funds for broad market coverage.

How Multi Cap Mutual Funds Work

Equity mutual funds pool money from investors to invest in company stocks.

Regulations require mutual funds to follow specific investment guidelines. For instance, a large-cap fund can only invest in the top 100 companies based on market capitalization, while small-cap funds focus on companies ranked below 250, and so on.

Multi-cap funds, however, are unique because they don’t have strict regulations on the size or sector of the companies they can invest in. This gives them the flexibility to invest in large, mid, and small-cap stocks. The proportion of these stocks is determined by the fund manager, who adjusts the allocation based on market conditions.

During periods of economic growth, the fund manager may increase exposure to mid and small-cap stocks to capitalize on their rapid growth. Conversely, in times of economic slowdown, they may shift towards large-cap stocks for stability.

Who Should Invest in Multi Cap Funds?

First-Time Investors:
Multi-cap funds are ideal for first-time equity investors because of their diversified portfolios, which help manage risk. Since new investors may not fully understand the risks tied to specific company sizes, multi-cap funds offer a balanced approach, making them a safe choice.

Undecided Investors:
Many investors struggle with the decision to choose between large-cap funds, which offer stability, and mid or small-cap funds, which present higher growth potential but also greater risk. Multi-cap funds address this dilemma by providing a mix of both, giving investors the best of both worlds.

Long-Term Investors:
For those with long-term financial goals—such as early retirement, funding a child’s education, or buying a home—multi-cap funds are a great option. These funds typically require an investment horizon of over 5 years, allowing time for the volatility of the equity markets to smooth out and for the benefits of compounding to take effect.

Investors Seeking Mid and Small-Cap Exposure with Less Risk:
Some investors want the growth potential of mid and small-cap stocks but aren’t comfortable with the higher risks and volatility associated with funds that focus solely on them. Multi-cap funds provide a way to gain exposure to these stocks while still managing risk.

Taxation on Multi Cap Funds

What truly matters are the post-tax returns. To understand these, it’s important to know how multi-cap funds are taxed. The tax on capital gains from selling your multi-cap fund depends on how long you’ve held the investment.

Short-Term Capital Gains Tax (STCG):
If you sell your investment within a year, the gains are considered short-term capital gains (STCG) and are taxed at a rate of 15%.

Long-Term Capital Gains Tax (LTCG):
If you hold the investment for over a year, the gains are categorized as long-term capital gains (LTCG). In many regions, a portion of the gains within a financial year are tax-exempt. Any gains beyond that threshold are generally taxed at a rate of 10%.

How to Invest in Multi Cap Funds

Investing in Multi Cap funds is easy and can be done through platforms like World Fund. Here’s a simple guide to getting started:

  1. Sign up online: Register on the World Fund platform via their app or website.
  2. Select your fund: Go to the Mutual Funds section and choose the Multi Cap fund you want to invest in.
  3. Choose your investment: Decide the amount you want to invest and select your investment method (SIP or lump sum).
    Complete your KYC: Submit your KYC details (like your ID and bank information) to finalize your investment.

By following these simple steps, you can start investing in some of the world’s top companies today.

Frequently Asked Questions

How long should I stay invested in Multi Cap Mutual Funds?
Since multi-cap funds are equity-based, meaning they invest in stocks of companies, it’s important to stay invested for a minimum of 5 years to fully benefit from their potential growth.
Multi-cap funds are required to invest at least 65% of their assets in stocks, as per regulations. This allows them the flexibility to build a portfolio with a mix of different sectors and company sizes. The exact composition of this mix is determined by the fund manager, who adjusts it based on evolving market conditions.
Multi-cap mutual funds invest in equities, which can lead to volatility in the short term. However, over the long term, the risk tends to decrease significantly as the market stabilizes and the potential for growth increases.
On average, multi-cap funds have delivered an annual return of 22.98% over the past 5 years. Their annualized returns over 3 years and 10 years stand at 19.34% and 15.52%, respectively.
Multi-cap funds take a flexible approach by investing across companies of all sizes and sectors. This strategy offers two key advantages: first, it allows the fund to select the best opportunities across various sectors, and second, the portfolio can be adjusted by the fund manager to respond to changing market conditions, ensuring it’s always optimized. Additionally, the diversification across sectors and company sizes helps reduce risk. For these reasons, a multi-cap fund should be a core component of every investor’s portfolio.

Explore Equity Mutual Funds

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