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What Are Multi Cap Mutual Fund Investments

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24 Jun 2023

There are several mutual fund categories available for investors to choose from, multi-cap funds being a popular choice. A multi-cap fund invests in large-cap, mid-cap, and small-cap companies, diversifying its portfolios across market capitalizations. Let's discuss in detail multi-cap mutual funds, their types, and why you should invest in them. 

What are multi-cap mutual funds?

Multi-cap funds invest in the equity shares of companies with varying market capitalisations. They have lower investment risk as compared to mid-cap and small-cap funds but the risk exposure is greater than that for large-cap funds. The fund managers of such mutual funds in India evaluate market conditions and then modify the percentage of large-cap, small-cap, and mid-cap stocks in the portfolio.

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Types of multi-cap mutual funds

Although they have no specific classifications, multi-cap funds can be broadly categorised as follows -

  1.  Large-cap focussed multi-cap funds: These schemes concentrate predominantly on investing in the large-cap segment before exploring possibilities in the mid-and small-cap segments. 
  2. Small/mid-cap focussed multi-cap funds: These schemes aggressively pursue investment opportunities across the small- and mid-cap segments, focusing on large-cap equities solely for downside protection. 
  3. No specific focus multi-cap funds: These schemes look for potential investments across market capitalisations, emphasising discovering outperforming stocks.

Who should consider investing in multi-cap mutual funds?

Investors can consider the following aspects and decide to invest in multi-cap mutual funds -

  • If your risk tolerance is moderate, you can consider investing in multi-cap funds.
  • Investors with a minimum investment horizon of 5 years, preferably 5+ years, should invest in these funds.
  • Multi-cap mutual funds are a good choice if you need complete market coverage through a single fund instead of multiple investments. Also, new investors who have difficulty choosing which capital sector to participate in may invest money in this fund.
  • If you prefer wealth creation in addition to a diversified portfolio that takes advantage of all capitalisation segments, consider multi-cap funds.

What are the features of multi-cap mutual funds?

Listed here are the key features of multi-cap mutual funds - 

Diversification

Diversification is the key feature and benefit of investing in multi-cap funds. The multi-cap fund is the only type of equity fund that makes investments throughout market capitalisation. Investors in mutual funds should not only concentrate on maximising returns but also on mitigating risks. Here, multi-cap funds make sense. The portfolio's diversification carefully balances the risk factor. 

Returns

Investors frequently get confused in large, hybrid, and index funds when it comes to profits. Yet, multi-cap funds provide higher returns than hybrid, large-cap, and index funds. Also, the performance of multi-cap funds relies on the fund manager. An investor can benefit from the fund manager's expertise and analysis (for selecting stocks).

Flexibility

Multi-cap funds invest across market capitalisation. Here, the fund manager has the freedom to invest in various market capitalisations based on market conditions. So it implies that fund managers may put money in large-cap funds to mitigate loss during periods of high market volatility. Alternatively, they can select small and mid-cap funds during a bull market. The asset allocation decision made by the fund manager might boost return or reduce risk.

What are the risks associated with multi-cap mutual funds?

Multi-cap mutual funds carry certain risks as well, which have been discussed here -

  • A multi-cap fund is an investment fund that puts money into stocks of companies of different sizes, including large-cap, mid-cap, and small-cap. Therefore, these schemes are riskier than large-cap schemes, mainly investing in big companies. 
  • The fund manager of a multi-cap mutual fund is always looking for chances to increase the portfolio's earnings. This goal is achieved by exploring possibilities within the small and mid-cap sectors. 
  • If the fund manager anticipates a prolonged market downturn, they may transfer the investments from mid/small-cap stocks to large-cap stocks. 

Conclusion

Investments in any funds, also multi-cap funds, include some risk. The previous performance is not indicative of future performance. Be mindful of your risk tolerance before making any investment choices.

 

Related Articles: How to analyse Mutual funds for big returns | How to compare mutual funds the smart way | Mutual Funds- Once an ugly duckling, now a golden swan

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