What are Multi Cap Funds – Its Types & Advantages

Equity mutual funds are one of the most popular investment tools in the market today. If you are new to them, you will find your choices lie between deciding between small-cap, mid-cap, large-cap, and multi-cap funds. While large-cap funds offer stability, small-cap funds are popular for their attractive returns.

But, when it comes to diversification and flexibility, nothing beats multi-cap funds. So, what is a multi-cap fund? Learn about this asset class and its benefits in this article.

What are multi-cap funds?

Multi-cap funds are essentially equity funds with holdings in stocks of companies with varying market capitalisation. This means that multi-cap funds consist of a medley of large-cap, mid-cap, and small-cap funds. The proportions depend on the investment approach and objective of the fund.

Large-cap, medium-cap and small-cap funds are bound by the size of companies they can invest in. They have clear mandates that will not allow them to invest in companies outside of their category. For instance, a large-cap fund will not invest in small-cap stocks, even if doing so will result in high returns. Because multi-cap funds have no such restrictions and are able to take advantage of market opportunities, they prove to be better wealth creators.

Additional Read: With the new SEBI rules, are Multi-cap funds worth the risk?

Features of a multi-cap fund

1. Diversification

Multi-cap funds invest across large, mid, and small-cap stocks, providing broad market exposure. With a diversified approach, they help manage risk and maximise return potential.

2. Investment horizon

Multi-cap funds typically invest in funds for a long-term investment horizon. This makes them an excellent option for investors seeking long-term wealth generation with moderate risk.

3. Active Management

Multi-cap funds invest in equity and related instruments of companies with different market capitalisations. Here, fund managers play a crucial role in actively selecting stocks and aiming to capitalise on emerging trends and market movements.

4. Risk Management

With investments in various small-cap, mid-cap, and large-cap companies, they carry a relatively higher risk than majorly investing in big companies.

Types of Multi-Cap Mutual Funds

Multi-cap funds can be broadly classified into these types-

1. Concentrated on large-cap stocks

These schemes primarily focus on investing in large-cap stocks and small and mid-cap stocks as a secondary option.

2. Small/mid-cap concentrated funds

 These funds actively invest in small-cap and mid-cap stocks and only invest in large-cap stocks as a safeguard to manage risk.

3. No specific concentration

These funds only focus on investing in funds that will outperform, irrespective of the market capitalisation.

How does a multi-cap mutual fund work?

Within multi-cap funds, there are no regulations governing the size and nature of companies the funds can invest in. This is why they invest in a diversified portfolio of stocks across large, mid, and small-cap companies, and the proportion of stocks can vary depending on the decisions of the fund manager.

Fund managers analyse market trends and select stocks across different market caps. They adjust the portfolio to respond to changing market conditions and opportunities. For instance, when the economy is booming, fund managers can increase exposure in mid-cap and small-cap funds to capitalise on the market growth.

How to invest in a multi cap mutual fund?

You can invest in multi-cap mutual funds through Tata Capital Moneyfy. Just follow these simple steps-

1. Visit the Google Play Store or Apple App Store to download the Tata Capital Moneyfy app.

2. Sign up by filling in your necessary details and completing the KYC.

3. Research different multi-cap mutual funds and compare their performance, expense ratios, and fund managers.

4. Choose a suitable fund and invest immediately.

Advantages of multi-cap funds

What are the advantages this mutual fund category offers?

If there is a golden rule of investing, it is diversification. There is no escaping the fact that the stock market fluctuates. Sometimes, certain small-cap stocks soar up, and at other times large-cap stocks go down. If you have invested in a fund that only invests in a particular category, market fluctuations can affect your overall returns. Multi-cap funds don’t restrict your investments to companies with a certain market capitalisation. Thus, by virtue of a diversified portfolio, you get more of a cushion against market risk with multi-cap funds.

Another advantage of a multi-cap fund is the decent returns (comparable to mid-cap) it offers. If you have a moderate risk appetite and want to invest in the stock market without spending time researching stocks and funds, pick multi-cap funds. These are excellent tools for wealth creation in the long run. You can safely assume that they will give you better returns than large-cap funds, but less than small-cap funds. Thus, by investing in a multi-cap scheme, your portfolio can have exposure to companies of different sizes and can enjoy diversification.

Additional Read: What Is The Power of Compounding & How Can You Use It?

Bottom line

In this article, we’ve answered the question - what are multi-cap funds? Multi-cap funds offer a host of advantages - good returns, diversity, flexibility, and risk mitigation. Choose these funds if you have a moderate risk appetite but want exposure to the stock market.

If you are looking for a platform to begin your investment journey with, Tata Capital’s Moneyfy app is the right partner for you. With an easy application process, user-friendly interface and strong after-sales service, you can achieve all your financial goals under one roof.

Download our app from Google Play or the App Store today and start exploring different funds and schemes to meet your goals.

FAQs

How long should you stay invested in multi-cap mutual funds?

Ideally, you should stay invested in multi-cap mutual funds for a long-term period, typically 5-6 years, to ride out market volatility and achieve optimal returns.

What are the major benefits of multi-cap funds?

Multi-cap funds offer diversified exposure to various market caps, flexibility in allocation, and the potential for high returns with balanced risk. They adapt to market conditions intending to balance growth and stability.

What is multi-cap mutual funds meaning?

Multi-cap mutual funds invest in a mix of large, mid, and small-cap stocks, providing diversified equity exposure. They balance risk and growth potential by adjusting allocations across different market segments.