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| December 24, 2021


Mutual Funds have gained sufficient acclamation over the years to emerge as one of the best investment instruments for both beginners and seasoned investors. They appear to be the preferred choice by a majority of investors for their better returns, as compared to the traditional tools of investment, as well as their low-risk bearing nature.

However, while investing in one, you might be riddled with challenging questions, as should you opt for large-cap funds for more stability or low-cap schemes for aggressive growth, should you take high risk in expectation of high yields or be satisfied with low risk low reward schemes, and more. This is where Multi-Cap Mutual Funds step in, easing the investment process for individuals who are struggling with similar questions.

What is a Multi-Cap Fund?

Multi-Cap Mutual Funds are diversified equity funds that invest in stocks of companies with different market capitalizations. This essentially means that Multi-Cap Mutual Funds invest both in large-cap funds, to provide better stability to your portfolio, as well as in mid-cap and small-cap funds to provide exceptionally high returns.

Investments in such funds are carried out in varying proportions to meet the investment objective of the fund while including sectoral funds that can add to the gains if a particular sector is performing exceptionally well. The mutual fund regulation mandates a minimum of 65% investment in equity-related instruments by Multi-Cap funds.

Types of Multi-Cap Mutual Funds

Based on the investment portfolio of different mutual funds and the business size of stocks they chiefly focus on, Multi-Cap Funds can be classified into three broad categories:

  • Multi-Cap Funds with a focus on large-cap stocks

These mutual funds make investments primarily focused on the large-cap segment, and then explore opportunities in the mid-cap or small-cap sectors.

  • Multi-Cap Funds with a focus on small/mid-cap stocks

Such mutual fund schemes are focused on investing in the mid-cap and small-cap funds and investing a small percentage of the value into large-cap stocks only to provide protection from downsides.

  • No focus on market capitalization

Multi-cap Mutual Funds that look for investment opportunities across market capitalizations with the sole purpose to find stocks that can outperform, fall under this category.

Reasons to invest in Multi-Cap Funds

Here are some of the top reasons why you should invest in the best Multi-Cap funds:

  • Low Risks

A majority of best Multi-Cap funds have been known to invest primarily into large-cap funds over the years, with a minority investment in mid-cap or small-cap stocks. Large-cap schemes allow such top Multi-Cap Funds to be stable in the long term and safe to be held by investors without incurring losses. This diversification of the investment criterion has resulted in stabilizing the investor’s portfolio and has ensured lower risks.

  • High Returns

The mutual funds regulator requires Multi-Cap funds to invest at least 25 percent of portfolios in large, mid and small-cap stocks each so that they stand true to their nature. Now, it is well-known that although small-cap and mid-cap stocks are more volatile compared to large-cap stocks, they generate better returns and growth rates. Thus, in the long run, Multi-Cap funds are usually better wealth creators than other categories of funds as they can take advantage of investment opportunities across the market.

  • More Flexibility

For investors who do not understand the nuances of individual stock picking or are new to the market, Multi-Cap Mutual Funds make the best choice. They do not have the pre-requisite knowledge to understand valuations of large, mid and small-cap funds and do not know which category will do well in the future. With some of the best Multi-Cap Mutual Funds, beginner investors get the flexibility to switch holdings in the fund. For example, when valuations in the small or mid-cap space turn expensive, the investor can simply invest a higher percentage into large-cap funds, and vice-versa.

  • Diversification of Portfolio

When investing in the stock market, it is commonly heard that one should not put all of one’s eggs in a single basket. The principal behind Multi-Cap growth funds lets the investors actually employ this important rule by diversifying their investment in Equity (Large-Cap, Mid and Small-Cap, Multi-Cap), Debt and other instruments including a portion invested in traditional investment tools. Such a portfolio is less prone to risks and more likely to provide higher returns.

How to choose a Multi-Cap Fund

Performance of Multi-Cap Mutual Funds is highly reliant on the fund manager’s views, as it is the job of the fund manager to scan for and choose the right set of stocks across different market caps that can deliver growth. While choosing a Multi-Cap Fund, it is advisable to check the fund manager’s past record as well as the long-term performance of the fund to get clarity on the risk profile and return rates. A look into the sectoral trends is also important while investing in a Multi-Cap fund as it is not confined to any one particular market, and there could be certain sectors that would be performing better than others. Lastly, parameters such as three-year and five-year average annualized returns, volatility and portfolio concentration should also be researched when choosing a fund.

Look for the top 5 Multi-Cap funds for the long term. The best mutual funds in the market at any particular time more often than not comply with all the factors discussed above and are the right stocks to choose for an investor.

For someone whose investment objective is wealth creation over the long-term with moderate risk tolerance but inadequacy in understanding the matters of the market, investing in Multi-Cap Mutual Funds makes great sense. With a diversified approach and promise of higher returns, these funds make the best of every investment opportunity.

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