Multi Cap Funds – Concept, Benefits, Types, Risk Factors, Reasons to Invest & more

Often, investors have a plethora of questions rolling at the back of their minds when it comes to investing including Multi Cap Funds in general.

And that is true even for you as an investor, as you might be wondering if you want to invest in large-cap or small cap schemes? 

But before investing in any scheme, experts advise that one must consider their risk-taking appetite. 

One thing is for sure that you can’t define as your risk as small-cap, midcap, or large-cap. And there are times when the funds don’t match your risk-taking preference.

Hence here comes the multi cap fund. For almost all investors today, mutual funds are synonyms for investment.

The only reason why mutual funds are so famous among investors today is that they offer better returns as compared to typical investment avenues.

But before moving on to multi-cap funds, you must know some basics about equity-based funds. Firstly, equity mutual funds feature securities from large, small, and midcap companies. 

All of these companies are listed on various stock exchanges. All the funds are defined as per the market capitalization. 

Basically, the market cap is the current value of the company. You can calculate it by dividing the current price of one stock and the importance of outstanding shares. 

Here, large-cap companies are one of the biggest corporates, and small-cap companies are startups. In between are the midcap companies, which comprise of small and medium firms. 

But here, we shall focus on multi-cap funds as they are a blessing for investors who don’t have a specific risk-taking appetite.


About Multi Cap Funds

Investors are pretty stressed when it comes to investing as they don’t know which funds to invest in.

Multi Cap FundsBut investors must know the pros and cons of each fund before making any decision regarding investment. 

Large-cap funds offer stability to your funds, while on the other hand; small cap funds provide incredibly high returns. 

On the flip side, sectoral funds provide significant returns if the sector is performing correctly.

No doubt, one fund type weighs over another in some features, thanks to the flexibility, which is multi cap fund. 

In simple terms, we can say that multi-cap funds are equity funds that are diversified. By diversification, we mean that they invest in securities of companies featuring different market capitalizations. 

With respect to the objective of the investment, one can make investments in different proportions.

Ideally, the multi-cap funds invest the amount of corpus in a portfolio which features equity and equity-related instruments with different market capitalizations. 

Hence, in a multi cap mutual fund, you can find all types of companies, including large, small, and midcap funds.

The best part about multi-cap funds is that they invest in varying proportions so that they match your risk taking criteria.


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    Why Invest in Multi Cap Mutual Funds?

    If you choose to invest only in Large Cap Funds, for instance, then fund managers have restrictions as they can’t support the corpus amount in small-cap funds.

    Even if the opportunity is feasible, fund managers can’t help then. It is the only reason why multi-cap mutual funds are ideal for investors as they can create wealth.

    Wealth creation is mainly possible because fund managers are free to invest in all caps available across the market.

    Additionally, almost all investors can invest in multi-cap funds irrespective of their financial goals.

    Additionally, you can also call Multi Cap Mutual Funds as diversified funds. It is because stock allocated to these funds features all three types of caps.

    Besides allowing investors to explore the different types of stocks, these funds also have the caliber to give high returns. 

    They strike a balance between highs and lows because some funds go beyond the benchmark, and some go below it. 

    The main agenda of the fund is capital appreciation. Hence the fund managers choose to invest in funds that have great potential for growth. 

    Expert’s advice is to invest in funds that can strike a balance between NAV, trade-off growth, and risk. 


     

    Who should Invest in Multi-Cap Funds?

    The Multi Cap Funds are ideal investment tools for investors having a moderate risk taking appetite.

    Investors who choose to invest in multi-cap funds aren’t curious to research on a specific niche in the market.

    Above all, investors looking forward to investing in these funds can expect wealth creation. The funds also have the potential to offer better returns as compared to large cap funds. 

    But at the same time, they provide fewer returns as compared to small and midcap funds.

    Thus, by choosing multicap funds, you can have exposure to different types of companies. Above all, you get a simple diversification.


    How is your portfolio related to Multi-Cap Funds?

    Funds from large-cap, small-cap, and Midcap companies feature some limitations. These stocks need to follow some mandatory guidelines set by the companies. 

    Even if the valuations are going great, fund managers don’t have the liberty to switch the corpus amounts. 

    Hence, you can say that be it any stock; it is forced to stay in that particular niche only.

    And even if the market is not performing to the mark, you don’t have an option but to stay there. In such cases, multi-cap funds are the best options for investors.

    Thus, you can say, seeing the long-term criteria, the Multi Cap Funds hold the potential to perform well and give out the best possible wealth creation. 

    As compared to other categories, these funds tend to take advantage of available opportunities across the market spectrum.

    Furthermore, in comparison to the midcap category, they are less volatile in the long run.


    Different types of Multi Cap Funds

    Multicap Funds that focus on large cap stocks – The funds under this category are most likely to focus on investing in the large-cap companies.

    Besides, they explore pretty less in midcap and small-cap companies.

    Multicap Funds that focus on small-cap stocks – Under this category, the funds are investing a significant part of the corpus in the small-cap and mid companies.

    Additionally, they invest in large stocks only to protect the slumps in the market.

    No particular focus on market capitalization – In this category, the schemes don’t have any specific direction. All they do is look for stocks that can outperform.


    Things to consider before Investing in Multi Cap Funds

    Here are the various things to consider before investing in Multi-Cap Funds –

    Past Performance and Investment Goals

    Every fund must offer significant returns if it has growth potential.

    The best part about looking at the past performance is that it gives you an idea about the NAV, which tends to react in different types of market cycles.

    As per experts, investors must invest in funds that give out at least 12 to 18% returns per annum.

    Downside

    You need to know that all funds tend to behave differently in bearish and bullish markets.

    If the funds are listed as top funds to invest in, then they can have a limited downside of 3 months to 1 year.

    High returns with SIP

    The majority of the investors today choose to invest systematically as compared to lump-sum amounts. If the funds perform well, then even SIP investors can avail great returns.

    Fund Manager

    As you know by now, that Multi Cap Funds invest in different equity related instruments across the market.

    The fund manager mainly looks forward to diversifying the investment to achieve the fund’s plan.

    Above all, you must know that the fund manager plays a vital role in achieving the goals of the scheme.

    Hence, you must understand that the fund manager can manage your funds through both good and bad markets. 

    Portfolio Concentration

    To ensure diversification, it is essential for an investor to determine portfolio concentration. 

    Tax Implications

    You must know that the investment in multi-cap funds is subjected to tax when you redeem some units. Additionally, you need to know that dividends are also taxable.


    Risk factors associated with Multi Cap Mutual Funds

    As the Multi Cap Funds choose to invest in mid cap and small cap funds, they tend to be riskier as compared to large cap funds.

    If the markets are doing great, then investors can choose to invest a significant part of the corpus to mid and small-sized funds. It will help in enhancing the returns.

    Additionally, if the markets decide to change, then the fund managers are free to move money from small-cap companies to large cap companies.

    It will help the fund manager to protect the fund when the market slumps down. In simple terms, you can expect some type of volatility in this fund type.


    How to select a Multi Cap Mutual Funds?

    As multi-cap funds choose to invest in a plethora of caps, it is essential for the fund manager to take into account the performance of the fund.

    Hence, you must check the past record of the fund manager along with long term performance before investing in the fund.

    The parameters for investment are three year and five year annualized returns, portfolio concentration, and feedback. During the tenure, you must also look at the portfolio.

    Additionally, you must also look at sectoral trends. It is mainly because of the these don’t invest in any specific market.


    Reasons to invest in Multi Cap Mutual Funds

    Here are the benefits of Investing in Multi-Cap Mutual Funds –

    Diversified Portfolio

    Under the Multi Cap Funds, the amount of corpus is invested across different market caps. With diversification, you can get some flexibility.

    Besides, you can also get an idea of how does the portfolio performs in various market cycles. Above all, it is easy for fund houses to control the risks easily in the Multicap Funds.

    High Returns

    Be it short or long term investment period, you can earn high returns. It is an excellent opportunity as stocks are allocated among different caps.

    The stocks give high returns when the market is bullish. On the other hand, large caps offer high returns when the market is bearish.

    Systematic Risk

    You can invest in these funds through SIP. Above all, the past performance of the funds can allow you to earn higher returns because the funds are in diversification.

    Investment Goals

    When it comes to investing in portfolios, investment goals tend to play a crucial role.

    By investing in Multi Cap Funds, you can achieve all objectives, including maximizing returns and minimizing returns.

    Suitable for all types of Risk preference

    Irrespective of the kind of investor, i.e. you are conservative, high, or moderate. You can choose to invest in Multi Cap Funds as they allocate funds in all types of caps.

    Hence, these funds can strike a balance between risk and return.


    Best time to Invest in Multi Cap Funds

    Similar to small cap and large cap funds, the Multi-Cap Funds can perform well in the long term. You can consider investing in Multi Cap Mutual Funds if you want to create wealth over the long term.

    Well, you can make the best of all the investment opportunities in the equity market as the Multicap Funds offer diversification.


    Multi Cap Mutual Funds – Conclusion

    Multi Cap Funds are among the best investment avenues for investors who want to earn significant returns without taking much risk. 

    Additionally, with these funds, you can get a lot of flexibility. By investing in these funds, you can achieve all your objectives. 

    You can make the most of your corpus by investing in Multi Cap Funds. Hope this guide can help you in investing in the Multicap Funds.

    Hence, it can be concluded that these make wealth creation easy for you.


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