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What Are Multi Cap Mutual Funds & Why Are They Important For You?


Investing in Mutual Fund’s is the most sought after thought to grow your wealth over a period of time. As we know, Mutual Fund’s investment depends on your risk tolerance.
Hence a Large-Cap, Mid-Cap or Small-Cap may not be in sync with your risk preference and this is where Multi Cap Mutual funds come into the picture.

Therefore, today we will be discussing Multi Cap Mutual Funds. What are they, how they are different from other types of funds and how they can benefit you? Read on to explore everything you need to know about Multi Cap Mutual Funds.

What are Multi Cap Funds?

Multi Cap Funds invest in a portfolio of Equity and Equity related Stocks of companies with varying market capitalizations. Hence, you will find investments in Large-Cap, Mid-Cap or Small-Cap companies. Every scheme invests in different proportions making multi cap funds a great option to match your risk tolerance.

In simple words, what this means is, it gives your fund managers options to diversify your investment. For example, if you invest in Large-cap or Mid-cap funds, fund managers are restricted by the portfolio definition and cannot invest elsewhere, which mean they cannot invest in Small-cap funds even if the opportunity looks exciting. Hence, Multi Cap funds give the option to fund managers to leverage the investment across options of the market. Therefore, Multi Cap Mutual Funds are a better option for wealth creation plus it helps in reducing the risk portfolio to a great extent.

multi cap mutual funds
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Types of Multi Cap Funds

Multi Cap Funds can be divided in general amongst the following categories –

  • Multi Cap Funds with a focus on large-cap stocks – These schemes largely focus on investing in the large-cap segment and explore opportunities in Small/Mid Cap Sectors.
  • Multi Cap Funds with a focus on small/mid-cap stocks – These schemes look for investment opportunities in small/mid-cap segments and view large-cap stocks only to safeguard any downside.
  • No specific focus on market capitalization – These schemes look for investment opportunities across market capitalization with a focus on finding the stocks which can increase the returns.

Why Should You Invest in Multi Cap Equity Funds?

These funds are curated in such a way as to hedge risk for an investor by investing the corpus in a vast range of stocks. Hence they are also termed as best for retirement benefits.

Investing in Mutual Funds entirely depends on your goal perspective, what you are looking to get in return from them. If your goal is wealth creation, in the long run, Multi Cap funds can be best suited for you as they have moderate risk tolerance.

These funds also offering you a diverse portfolio in the equity market and ensuring the best of every investment opportunity.

What are the Risks Associated with Multi Cap Mutual funds?

Multi Cap Mutual Funds invests in Large cap, Mid cap and Small cap companies. Hence, it carries more risk than Large-Cap funds which primarily invest in big companies.The fund managers are always on the look out for more returns and are ready to invest in small/mid cap companies to ensure greater returns.

If on the contrary market remains on the downside for a longer duration, they are ready to move their investments from Small/Mid Cap companies to Large-cap companies. Hence, these schemes are more volatile.

What Factors to consider before you invest in Multi Cap Mutual Funds?

Fund Managers

They play the most important rule in any Mutual Fund, since they are playing an important role in deciding what should be the portfolio concentration, which sector to invest in and which companies to choose amongst large cap or small/mid cap.

You should see their past performances and accordingly take a decision. The way they handles past market ups and downs. Valuing your options and taking an informed decision.

Portfolio Concentration

Do keep an eye on which sector/industry your funds are being invested in. For Example if the fund manager invests majorly in IT sector, distributing it in Large and Small/Mid Cap companies, would open your portfolio to any disturbance created in IT sector, exposing the risk to a particular sector.

TAX Implications

Multi Cap Mutual Funds are subject to Capital Gains tax upon redeeming them you are liable for the same.

Dividend Distribution Tax (DDT)

All fund houses deduct 10% of Dividend distribution Tax before paying it out to the unit holders.

Capital Gains Tax

This is applicable when you make profits on selling the units of Mutual Funds. The rate of tax varies accordingly –

  • Short Term Capital Gain or STCG – Holding Period < 1 year. Tax rate = 15%.
  • Long Term Capital Gain or LTCG – Holding Period ≥ 1 year. 
    • For LTCG up to Rs. 1 lakh, no tax is applicable. 
    • For LTCG of greater than Rs. 1 lakh, the tax rate is 10% without indexation.

Note: – Mutual funds are subject to market risk, we are only advising you on what is available in the market for you to study and research better. Please take an informed decision before investing.

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