Multi cap mutual funds are diversified equity funds that invest across large cap, mid cap and small cap stocks. Multi cap fund schemes are recommended to equity investors with a moderate risk appetite.
What are Multi Cap Funds?
Multi cap funds are mutual funds that need to have a minimum investment in equity and equity related instruments of 65% as per regulatory norm of SEBI (Securities and Exchange Board of India). These funds are invested across market capitalizations i.e. firms of all sizes. Equity investments pan capitalizations and sectors offer flexibility of switching among sectors and stocks to the fund managers in order to achieve high returns and an optimum portfolio construction through diversification. A right mix of stocks in a multi cap fund plan leads to significant risk return adjustment.
Large cap equities offer high returns and stability in unfavourable times. Investment in quality stocks of mid cap companies and small cap firms generate higher returns in a bullish market as the shares come to real value and show endurance when markets are down. Fund managers can grab the best opportunities through multi cap plans to invest in stocks with growth potential and cover up the losses with large cap so as to give maximum returns to the investors.
Advantages of Investing in Multi Cap Funds
Multi cap funds are equity mutual fund plans that are obvious to aim for capital appreciation through investments in equities for a long tenure as for 5-10 years. The advantage of such equity plans is that a fund manager has an edge on any market condition and has options to switch between stocks, sectors and capitalization so as to obtain optimum returns for the investors
- Risk Adjustments
Multi cap mutual fund investments are riskier than pure large equity schemes but less than that of pure mid cap or small cap equity mutual funds. Mid cap & small cap may perform poorly in a bearish market but have better value in a bull market. In another scenario, large caps under perform when the market is expensive but show consistency when the market is down. In multi cap, the fund manager has the flexibility and choice to change the equity allocation as per market trends to manage and mitigate the risks
- Investor’s Diverse Portfolio
A fund manager may purchase more units of large cap in poor market conditions and more of small or mid cap when market is in favour. The continuous variation in the asset allocation gives a dynamic and diverse portfolio to the investors where their money is invested across all economic sectors and firm sizes
- Portfolio Management
Investors may find it tricky to switch among equity mutual fund schemes of different caps and may also have a tough time to keep a track on the market. In this fund, one gets assistance through professional management to keep the market volatility and returns balanced. Performance of multi cap funds depends heavily on the vision, ability and proactiveness of the managers. Wealth managers have often suggested a multi cap over plain large cap equity fund plans for long term wealth creation. It is also suitable for beginners who are going for first time equity mutual fund investments
Who should Invest
- Investors who are newbies and are unable to decide which cap to go for mutual fund investments, they can begin with a multi cap mutual fund scheme. Multi cap fund investments offer the flexibility of multiple capitalizations and the investor will not need to get into nuances of picking up individual market capitalization or stocks. They may switch later once they are sure
- Investors who want to balance risks and returns in a single portfolio can go for this mutual fund plan as fund managers adopt a dynamic strategy to keep a check on market volatility affecting returns of the mutual fund scheme. Investors with moderate risk tolerance may go multi cap fund investment
- Investors who want to accumulate corpus through equity fund investments in the long term as well as a diversified portfolio can go for multi cap mutual fund plans. If you are looking for short-term capital appreciation you can opt for debt funds which are liquid.
Things to be considered before investing
Every investment requires a sufficient amount of research and valuation of factors such as risks involved, history of returns accrued, business proficiency of the holdings etc. Here are some of the things which must be considered by an investor before investing into the Mutual Funds:
- Financial Goal– Before making any investment decisions, it is very important to evaluate that the fund objective is aligned to your financial goals. In case of multi cap investments, it is suitable for long term investors ready to invest in equity fund schemes with moderate risks and those who look for dynamic investment strategy
- Fund Performance– Measuring the performance of the fund in both bullish and bearish market situations is a necessity as it helps the investors in selecting a reliable fund. One should always choose a fund which has been performing with consistency
- Fund House & Management– There are numerous Mutual Funds regulated by different AMCs (Asset Management Companies). Fund houses & Fund Managers play a very decisive role in the allocation of assets and selection of stocks. If the management has enough experience and expertise, the fund will easily sail through promising market conditions and deliver good returns
- Costs Involved– There are different costs involved in Mutual Fund investments such as Expense Ratio, Entry Load and Exit Load. Investors must review these costs before heading up for investments
- Other Basics from the Portfolio: There are other different factors such as the fund NAV (Net Asset Value), AUM (Assets under Management) etc. which are to be viewed to make sure of the reliability and investor engagement in the fund
Top 10 Multi Cap Funds to invest in 2020
|Funds||AUM (Crore)||1 Year Returns (%)||3 Year Returns (%)||5 Year Returns (%)|
|Axis Focused 25 Fund||9,110||21.66||19.50||13.12|
|Tata Retirement Savings Fund||1,157||16.37||16.23||12.23|
|SBI Focused Equity Fund||6,924||22.05||18.14||12.21|
|IIFL Focused Equity Fund||551||30.90||16.76||12.08|
|Motilal Oswal Multicap 35 Fund||13,131||9.85||11.54||11.97|
|Parag Parikh Long Term Equity Fund||2,585||17.39||15.07||11.55|
|SBI Magnum Multicap Fund||8,480||13.61||13.32||11.30|
|Kotak Standard Multicap Fund||29,598||15.18||14.58||11.14|
|Aditya Birla Sun Life Equity Fund||11,856||12.67||11.67||10.77|
|JM Multicap Fund||143||19.32||14.34||10.69|
Multi Cap Funds are taxed as per the taxation norms of Equity Fund plans. The long term capital gains up to Rs. 1 Lakh (after 1 year) are exempted from taxation, and the rest are taxed at a rate of 10%. For example, an investor makes capital gains of Rs. 2 Lakh, then Rs. 1 Lakh is exempted from tax and the remaining Rs. 1 Lakh will be taxed at 10%. Thereby, the payable tax at remaining rs. 1 Lakh is Rs. 10,000.
If the s/he redeems the fund in less than a year, then the short term capital gains will be taxed at 15% and no tax exemption will be provided. In that case, the payable tax on Rs. 2 Lakh would be Rs. 30,000.
How to Invest in Multi Cap Funds
You can invest in large and mid cap funds through either of the following ways-
- Offline mode of investing– If you are not confident of your knowledge, you may choose to invest through a broker. However, investing in a fund through a broker will make you eligible for investments through regular plans that offer different returns and varied expenses in investment. If you wish to invest in the fund independently, you must visit the nearest branch of the AMC of your fund. Don’t forget to carry the following documents-
- Identity Proof (Aadhar Card)
- Cancelled cheque
- Passport size photos (around 4-5)
- PAN Card
- KYC documents (for KYC verification)
- Online mode of investing– If you do not wish to add on to your expense of commissions or brokerage, you may visit online investment platforms such as Paisabazaar.com wherein you can choose from and compare more than 1,700 funds- all in one place, instead of following the long procedure of visiting the website of each AMC and then choosing from them. Here, you can select the fund in which you want to invest, look at the details and compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment
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