What are Multicap Funds & How Do they Work?

According to SEBI, multicap funds are obligated to keep at least 75% of their assets invested in equity and equity-related instruments at all times. Therefore, their portfolios must ensure that at least 25% of their assets are invested in large cap stocks, 25% in mid cap stocks, and 25% in small cap stocks respectively.

Market capitalization, or market cap, is a measurement of a company's size. According to SEBI, all companies that are listed on the stock exchanges are ranked based on their market cap. The top 100 companies are categorised as large cap companies. Companies ranked from 101st-250th as mid cap companies, and those from 251st onwards as small cap companies.

Large cap companies generally have an established track record and tend to be less volatile. Mid cap companies are typically riskier than large caps and are in a growing phase. Small cap companies carry even more risk compared to mid -cap companies and have higher growth potential.

Multicap funds help to manage risk through diversification. By investing in stocks of companies with varying market capitalizations and sectors, they spread risk across different segments of the market.

Multicap funds are managed by experienced fund managers who adjust the portfolio allocation based on prevailing market conditions, aiming for the fund to be positioned for optimal performance.

Multicap funds provide a balanced approach, aiming for stable returns and managed risk by capturing opportunities across the entire market, regardless of company size however investors should understand that risk and rewards are subject to dynamic market conditions.

Multicap funds can be suitable for investors with a medium to long-term investment horizon. While short-term fluctuations may occur, the diversified nature of these funds may make them suitable for investors looking to build wealth over time.

Unlike funds that focus on a specific market capitalization, multicap funds allow investors to invest in all market caps and sectors simultaneously. This provides more comprehensive equity exposure within a single fund. This makes the fund positioned to benefit from changing market cycles where different market segments may potentially outperform at different times.

While returns from multicap funds can vary based on market conditions, the aim is to make the most of various market segments during different market cycles. It is important to note that multicap funds come with very high risk and past performance is not indicative of future results.

Investing in multicap funds offers several advantages. The first is simplicity and convenience of investing in multiple companies across market capitalization and eliminating the need to choose between large cap, mid cap, and small cap stocks. Second, these funds can help capitalize on varying market cycles where one market cap may outperform others. Third, these funds allow access to companies of all sizes - while large caps are predominantly well-established companies with relatively low volatility, small and midcaps come with greater potential to grow albeit at a higher risk. The combination offers a risk-adjusted portfolio that does not compromise growth prospects.

Yes, multicap funds can be suitable for first-time investors as they provide an opportunity to have exposure to all market capitalizations—large cap, mid cap, and small cap stocks with professional management. This approach allows new investors to access a broad spectrum of growth opportunities across different segments of the market without the need for extensive market knowledge, however the investors should read scheme related documents to understand the objective of the fund

Investing in multicap funds can be simple. You can invest directly through the websites of fund houses or through online platforms offering mutual funds investment services. Additionally, you can approach banks, financial advisors, or mutual funds distributors to help you with the investment process. Before investing, it's essential to research different funds, consider factors such as risk profile, fund performance vis-à-vis benchmark and peers, expense ratios, and investment objectives. Consult with a financial advisor to align your investments with your financial goals.

Multicap funds are eligible for equity taxation as they invest at least 75% of their assets in equity and related instruments. Each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of his or her participation in the scheme.