Multi Cap Funds

What is Multicap Funds?

In today's dynamic market, whenever you think of investment, you think of mutual funds. However, which fund should you invest in to ensure maximum benefit. The answer is multicap funds.

Multicap mutual funds are diversified funds that invest in stocks across market capitalization. They put their corpus in a portfolio of equity and equity-related stocks of companies holding varying market capitalizations. The proportion of investment is done depending on the investor's risk tolerance capacity. This way, fund managers can leverage investment opportunities and work on the best permutation combination scheme for optimum wealth creation through investments in the best multicap mutual funds.

Who Should Invest in Multicap Funds?

Before we discuss the category of investors most suitable for multicap funds, we need to first understand the different categories of multicap funds and the comparative performance of different types of equity funds.

Types of Multicap Funds:

Multicap funds with a focus on large-cap stocks- These schemes focus on investing primarily in large-cap shares, and then they explore the opportunities in the other sectors.

Multicap funds with a focus on small/mid-cap stocks- These schemes focus mainly on investments in small and mid-cap shares and consider large-cap stocks to play safely in case of any downside.

No specific focus on market capitalization- These schemes invest in stocks that show high prospects to outperform. Hence, they look for investment opportunities across market capitalization.

Hence, multicap funds are best suited for :

  • Those investors are looking for wealth creation as their objective in the long run but have moderate risk tolerance.
  • People who do not understand the nuances of individual stock pricing or find it difficult to decide which market capitalization fund to put their money in.
  • Investors who have a horizon of 10 years and above.
  • Those looking for volatility in their segment of funds want to benefit from their earnings under any given market scenario.

Taxability of Multicap Funds

Like other mutual funds, multicap funds are also taxable. For every investment, it is the post-tax returns that matter. To rule that out, you need to be well versed with the taxation policies for multicap funds. The capital gains you make on selling on multicap funds that are taxed, depending upon how long you hold on to these investments.

Short-term Capital Gain Tax (STCG)- When you sell your multicap stocks within a year, they are categorized under short-term capital gains, and a tax rate of 15%, as of date, is levied on the capital gains earned from them.

Long-term Capital Gain Tax (LTCG)- Any multicap stocks held for more than a year are classified as long-term capital gains. The returns of less than a lakh in a financial year are tax-free, and beyond that, a tax rate of 10%, as of date, is levied on the capital gains earned from them.

The Risk Involved With Multicap Funds

Multicap funds have their own set of risks and expenses that come attached with them. As someone who is an investor, you should be aware of these in detail before you step forward to invest in them.

Investment Goals

Multicap funds are best suited for those looking at a minimum of 5 years of investment horizon and are in a state to block their money for this period. Only then can they make the most out of their funds through investment in multicap mutual funds.

Risks Involved

When you invest your money in multicap funds, you invest in equity stocks in the share market. Hence, you are exposed to the risks that come attached with it. Considering this fact, short to medium-term markets can be volatile, and returns may not be very satisfactory. So, you need to accept this fact before investing in this category of mutual funds.

Expense Ratio

Some expenses bite into your returns when you invest in multicap funds, and you need to be aware of them before investing. You will have to pay an expense ratio as commission to Asset Managing Companies to manage your multicap funds for you on an annual basis as a charge for administrative and operating expenses.

Advantages of Multicap Mutual Funds

Multicap mutual fund invests in all three kinds of companies – India’s biggest, mid-size, and small companies. Like every other category of funds, multi-cap funds have their share of advantages.

Diversification

Multicap funds offer a diversified portfolio as they invest in companies of various sizes and sectors. This way, spreading out investments on different sectors or parts lowers the risks and keeps things in control.

Exposure

You get exposed to every opportunity available in the Indian market as these funds do not restrict themselves to any one sector. Hence, there is wider exposure to all key sectors driving and ruling the Indian economy.

The Prevailing Market Condition

Multicap funds invest in a mix of large, medium, and small-cap funds, depending on the present market scenario. Hence, they yield the best returns by getting the best from all three different categories of companies, ruling the market.