Investment decisions are often riddled with a series of challenging questions. Should you opt for large-cap funds for more stability or low-cap schemes for aggressive growth? While many investment experts recommend that you consider your risk tolerance before making such decisions, the fact is that our risk tolerance cannot be easily defined as low, high, or even medium.
Hence, a large-cap, small-cap, or mid-cap fund might not be in sync with your risk preference. This is where Multi Cap Mutual Funds step in. We will now explore Multi Cap Funds and look at various factors that you need to know about them.
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As the name suggests, Multi Cap Funds invest their corpus in a portfolio of equity and equity-related stocks of companies with varying market capitalizations. So, in a Multi Cap fund, you will find investments in large-cap, small-cap, and mid-cap companies. Every scheme invests in different proportions, making the Multi Cap Fund category a good option to match your risk tolerance.
When you invest in a large, small, or mid-cap fund, the fund managers are restricted by the portfolio definition. This means that a fund manager of a large-cap fund cannot invest in shares of a small-cap company even if the opportunity is lucrative. Hence, a Multi Cap fund is considered to be a better option for wealth creation as the fund managers of these funds can leverage investment opportunities across the spectrum of the market. Also, every investor can find a Multi Cap scheme in sync with his financial needs.
The primary characteristics of these funds are:
A Multi Cap fund invests in equity and equity-related instruments of companies across different market capitalizations. Also, the fund manager keeps looking for opportunities to diversify the investment to achieve the objectives of the scheme. Therefore, the fund manager plays a crucial role in the success of such schemes.
By virtue of its definition, a Multi Cap fund invests in stocks of large-cap, mid-cap, and small-cap companies. Hence, these schemes carry more risk than large-cap schemes, which invest primarily in big companies.
These funds hold a long term investment horizon. If your investment objective is wealth creation over the long term and you have a moderate risk tolerance, then you might want to consider investing in Multi Cap Mutual Funds.
While there are no specific names for them, Multi Cap funds can be broadly classified into the following types:
1. Concentrated on Large Cap Stocks
These plans focus on investing in large-cap segments and secondarily explore small and mid-cap shares.
2. Small Cap/Mid Cap Funds Concentrated Funds
These funds aggressively look for investment options in the small or mid-cap segments and invest in large-cap stocks only as a safeguard from a downfall from the other category.
3. No Specific Concentrations
These schemes look for investment choices across market capitalizations with a clear focus on finding stocks that can outperform.
Mutual funds are required by law to have a specified investing strategy. A large-cap fund can only invest in the equities of the top 100 market capitalization businesses. Small-cap funds, for example, can invest in companies listed below 250, and so on.
However, Multi Cap is the only category that lacks a regulatory structure that governs the size and industry of companies in which it can invest. As a result, these funds invest in large, mid, and small-cap equities. The proportion of these stocks may now fluctuate. It is up to the fund management.
They assess market conditions and alter the proportion of large-cap, mid-cap, and small-cap companies in a Multi Cap mutual fund's portfolio accordingly.
When the economy is expanding, the fund manager can increase his or her exposure to mid-cap and small-cap stocks to capitalize on their rapid growth. When the economy slows, on the other side, they may increase their exposure to large-cap stocks.
You can invest in Multi Cap funds through Groww; all you have to do is follow the steps explained below.
Step 1: Visit the Apple app store or Play Store, and download the Groww application.
Step 2: Once you download the application, sign up, complete your KYC, deposit money into the account, and find a suitable multicap fund.
Step 3: After this, you can make your investment in the fund almost instantly.
The major benefits of investing in these funds are:
Multicap funds provide a diverse portfolio since they invest in firms of various sizes and sectors. This method of diversification reduces your risk. This is because different sectors or areas of the market can perform differently at any one time, and spreading investments across several sectors keeps risk under control.
The ability to choose between large, mid, and small-cap allows these funds to adjust their portfolio composition to best meet market conditions. For example, if mid and small-cap stocks become pricey and it appears that the space is on its way to becoming overvalued, the fund manager can shift to large caps and take a defensive position.
When you redeem your Multi Cap Fund units, the capital gains made by you are subject to Capital gains Tax. Also, any dividend you receive is subject to Dividend Distribution Tax or DDT.
Capital Gains Taxes
Capital Gains Tax is applicable when you make profits on selling the units of the scheme. The rate of tax varies according to the period for which you held the units before selling them, as explained below:
STCG: Holding period < 1 year. Tax = 15%
LTCG: Holding period > 1 Year for up to 1 lakh, there are no taxes, but more than that is taxed at 10% without indexation.
All fund houses are mandated to deduct tax (DDT) of 10% before paying out dividends to unitholders.
Q1. What is Multi Cap mutual funds meaning?
Multi Cap funds are investment vehicles that invest across market capitalizations. Therefore, their portfolios consist of large, mid, and small-cap mutual funds.
Q2. How long should you stay invested in Multi Cap Mutual Funds?
Since Multi Cap Funds are equity funds, you can consider staying invested for more than 5-6 years.
Q3. How does a Multi Cap fund work?
The basic strategy of a Multi Cap fund is that it aims to follow a balanced investment strategy across sectors.
Q4. What are the major benefits of Multi Cap funds?
The first-most advantage of investing in Multi Cap funds is that you will get to invest across sectors.
Q5. What types of Multi Cap funds are there?
There are mainly Multi Cap funds with a high concentration on large-cap funds, Multi Cap funds with a large concentration on mid/small-cap funds, and Multi Cap funds with no specific concentrations.
Disclaimer - Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
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