Multi Cap 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.
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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.
Features of Multicap Funds
Before plunging into investing in Multicap funds and studying which is the best multicap fund to invest in, you need to know the features and characteristics of these funds in detail.
Freedom of Investment
Multicap funds have a wide spectrum where your equity mutual fund portfolio comprises different market cap funds compiled into one. This provides your fund manager with the freedom to invest and pick up stocks that suit your investment objectives the best and decreases your portfolio’s dependency on the market cap size.
Multicap funds generate flexibility for new opportunities across the market. For moderate risk-taking investors, these funds provide scope for growth across the market without capital size restrictions.
Multicap funds provide freedom from capital size restrictions, and hence the risk involved in investing in equity is mitigated, especially when the markets are volatile. A good multicap fund acts as the risk regulator in your wealth creation process.
Multicap funds open scope for better returns as they are not dependent on one particular category of stock selection. They have a large universe of stocks to choose from and invest in. Hence, fewer stocks in diversified funds make for a better portfolio with lesser risks and higher expectations on returns.
Factors to consider while investing in Multicap Funds
Here is a list of factors you can consider before investing in multicap funds.
Performance of Multi-Cap Mutual Funds
When considering a multi-cap fund, the investor should look at the overall performance of the fund. It includes the fund managers’ credentials, the P/E ratio, EPS, Enterprise value, and past returns. Depending on the goal and the investment horizon, investors should also consider how the key investments made by the fund will play a role in the coming five to ten years and make an informed decision accordingly.
Risk To Return Ratio
Like other equity-linked funds, multi-cap funds are prone to higher risks and thus fall in the high-risk category. The fund experience high volatility due to market conditions. However, the volatility can be higher than a large-cap fund and generally lower than a small-cap fund. So depending on the type of fund and overall objective, the risk factor of this fund can vary.
Some expenses bite into your returns when you invest in multi-cap 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 multi-cap funds on an annual basis as a charge for administrative and operating expenses.
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.
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.
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.
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.
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.
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.
Best Multi Cap Funds
Quant Active Fund
Quant Active Fund is a multi-cap mutual fund that invests across large-cap, mid-cap, and small-cap stocks, to enable investors to generate capital appreciation and provide long-term growth opportunities. Managed by Ankit Pande, Vasav Sahgal, and Sanjeev Sharma, the fund was launched in March 2001 and invested primarily in the NIFTY 500 Multicap Index with a 50:25:25 ratio. The fund has INR 2645 Crores AUM as on 30/06/2022 and an expense ratio of 0.58%, which is less than that of other multi-cap funds. The fund’s top holdings are ITC, State Bank of India, Adani Ports and Special Economic Zone, Vedanta, Larsen & Turbo, among others.
- Minimum Investment: For new investors, INR 5000/- and any amount thereafter
- For existing investors, INR 1000/- and any amount thereafter
- For the Systematic Investment Plan (SIP), the minimum amount is INR 1000/- and in multiples of INR 1/- thereafter
- Fund’s Performance: Quant Active Fund has given 20.61% returns since inception and gave 18.39% returns in the last 1 year.
PGIM India Flexi Cap Fund
A scheme by PGIM India Mutual Fund, the PGIM India Flexi Cap Fund was launched on 11/02/2015 and had an AUM of INR 4761 crores as of 30/06/2022. The scheme is linked with the NIFTY 500 TRI benchmark and has a low expense ratio of 0.32% compared to others in its category.
The fund mainly invests in financial, capital goods, automobile, technology, and energy sectors, with its primary holdings being in ICIC Bank, HDFC bank, Infosys, Axis bank, and Reliance Industries.
- Minimum Investment: SIP INR 1000 & Lumpsum INR 5000
- Fund’s Performance: PGIM India Flexi cap Fund has given its investors a 15.03% return since its inception, and the past 1-year return has been 2.53%.
Parag Parikh Flexi Cap Fund
One of the most popular multi-cap funds in the segment, Parag Parikh Flexi Cap Fund, was launched n 13/05/2013 and is one of the rare mutual funds in India that also invests in US stocks. The AUM of the fund is INR 24595 as of 30/06/2022, and it has an expense ratio of 0.77%.
The primary investments made by this find are in HDFC, Bajaj Holdings & Investments, ITC, Alphabet, and Microsoft.
- Minimum Investment: SIP INR 1000 & Lumpsum INR 1000
- Fund’s Performance: The Parag Parikh Flexi Cap Fund has given its investors 7.66% returns in the last 1-year period and 19.58% since inception.
Canara Robeco Flexi Cap Fund
Canara Robeco Flexi Cap Fund is a multi-cap fund that was launched on 01/01/2013 and has grown to have an AUM of INR 7934 crores as of 30/06/2022. The fund has an expense ratio of 0.51% and most of its money is invested in the Financial, Technology, Automobile, Energy, and Healthcare sectors. The fund’s top 5 holdings are ICICI Bank, HDFC Bank, Infosys, Reliance Industries, and State Bank of India.
- Minimum Investment: SIP INR 1000 & Lumpsum INR 5000
- Fund’s Performance: The fund has delivered 14.75% returns since inception and a 1-year return of 6.77%.
Invesco India Multicap Fund
Invesco India Multicap Fund is a multi-cap scheme that primarily invests in NIFTY 500 Multicap with a ratio of 50:25:25 and is launched on 01/01/2013. The fund has an AUM of 2046 Crores, with an expense ratio of 0.86%, which is close to what other multi-cap funds offer.
The fund’s top holdings include ICICI Bank, Reliance Industries, Infosys, Axis Bank, and State Bank of India, with the direct investments being in the financial, capital goods, automobile, materials, and energy sectors.
- Minimum Investment: The minimum amount required to invest in Invesco India Multicap Fund is INR 500 via SIP and INR 1000 via lumpsum
- Fund’s Performance: Since its inception, Invesco India Multicap Fund has given 17.99% returns to its investors, with the last 1-year return being 5.25%.
UTI Flexi Cap Fund
UTI Multi Cap Mutual Fund was launched on 01/01/2013 and invested in the NIFTY 500 TRI benchmark, with diversification in multiple asset classes. The fund has an AUM of INR 25,448 as of 30/06/2022 and an expense ratio of 0/95%, which is comparatively higher than other multi-cap funds.
The fund invests majorly in the financial, technology, healthcare services, and materials sectors, with the top 5 holdings being in Bajaj Finance, ICICI Bank, HDFC Bank, Infosys, and Kotak Mahindra Bank.
- Minimum Investment: SIP INR 500 & Lumpsum INR 5000
- Fund’s Performance: The last 1-year return of UTI Flexi Cap Fund is -0.48%, but the return since inception is at 15.62%.
DSP Flexi Cap Fund
DSP Flexi Cap Fund was launched on 01/01/2013 and today has an AUM of INR 7739 Crores as on 30/06/2022, with an expense ratio of 0.73%. The Flexi cap fund delivers consistent returns and has invested in financial, automobile, technology, materials, capital goods, and other sectors. The top holdings of DSP Flexi Cap Fund are HDFC Bank, ICICI Bank, Bajaj Finance, Infosys, and Avenue Supermarkets, among others.
- Minimum Investment: SIP INR 500 & Lumpsum INR 1000
- Fund’s Performance: Although the fund’s returns in the last year are just 2.4%, the previous 3-year returns of the DSP Flexi cap Fund is 21.22%, with 14.94% since inception.
Edelweiss Flexi Cap Fund
Edelweiss Flexi Cap Fund has an AUM of 981 Crores as on 30/06/2022 and is a medium-sized fund in its category. The fund has an expense ratio of 0.53%, which is less than others in its segment, and primarily invests in the financial, automobile, technology, capital goods, and healthcare sectors. The fund invests in the NIFTY 500 TRI benchmark and has primary holdings in ICICI Bank, Infosys, Reliance, HDFC, and State Bank of India.
- Minimum Investment: SIP INR 300 & Lumpsum INR 5000
- Fund’s Performance: The Edelweiss Cap Fund has delivered average returns of 13.21% since inception and has given investors 9.8% in the last year.
Franklin India Flexi Cap Fund
Franklin India Flexi Cap Fund Direct-Growth is a Multi Cap mutual fund scheme that has existed since 01/01/2013. Today, the fund has an AUM of INR 9878 Crores as of 30/06/2022 and an expense ratio of 1.14%, higher than multi-cap funds. The fund has most of its funds invested in the Financial, Technology, Consumer Staples, Energy, and Services sectors, with the majority holding being in ICICI Bank, HDFC bank, Axis Bank, Infosys, and Larsen & Turbo, among others.
- Minimum Investment: SIP INR 500 & Lumpsum INR 5000
- Fund’s Performance: The 1-year return of the fund is 12.84% while it has enabled its investors to get a 15.98% return since inception.
Tata Flexi Cap Fund
Tata Flexi Cap Fund aims to generate medium to long-term capital appreciation by investing in a diversified portfolio across market capitalization and is ideal for investors who want to invest in a larger portfolio. The fund has an AUM of INR 2161 Crores as on 30 June 2022 and an expense ratio of 0.76%, close to most other multi-cap funds. The fund’s major investment is into financial, materials, technology, consumer staples, energy, and other sectors, with the top holdings being in ICICI Bank, Reliance Industries, HDFC Bank, ITC, and Tata Consultancy Service, among others.
- Minimum Investment: Minimum purchase of INR 5000, with an additional purchase of INR 1000 after that. The minimum monthly SIP amount can be INR 1000.
- Fund’s Performance: The Tata Flexi Cap Fund has generated annual returns of 14.39% since inception and 7.24% in the past 1 year.
Frequently Asked Questions
There is no specific proportion that fund managers need to allocate to multi-cap funds. It enables the fund manager to make decisions without worrying about allocation like other funds. This flexibility allows the fund to diversify in multiple companies, be it small-cap, mid-cap, or large-cap. Fund managers will make decisions based on existing market conditions and promise of return, making this the ideal option for first-time investors.
As multi-cap funds primarily invest in equity-linked instruments, the stocks are exposed to risk and are volatile to market conditions in the short term. So, multi-cap funds are categorized in the high-risk category.
Investing in multi-cap funds is ideal for someone who wants to diversify their portfolio and does not want to focus only on a particular cap, i.e., small-cap, mid-cap, or large-cap. Since multi-cap companies invest in multiple company types irrespective of their market capitalization, they have a relatively lower risk than small-cap or mid-cap, while also being ideal for a long-term investment horizon of at least 5-7 years.
Multi-cap funds offer several advantages to investors, such as the ability to diversify their portfolio into multiple sectors without any limitation of the company’s market cap. It also allows the fund manager to consider the best options per market conditions, enabling the investors to get a comparatively minimum risk and exposure to all key sectors and companies.
Since multi-cap funds invest in equity and equity-linked instruments, a tax is levied on capital gains or profits from selling the multi-cap fund. The tax is 15% if the investment is sold within 12 months, which is the short-term capital gains tax (STCG). For any capital gains post the 12 months, the long-term capital gains (LTCG) tax is levied at 10%.
For most multi-cap funds, there is no lock-in period. Investors can invest and exit at anytime as per their preference.