Multi Cap Mutual Funds

Multi-cap mutual funds are a segment of mutual funds that invest in the equity and equity-related stocks of a diversified group of companies across market capitalisation. In simple terms, these funds invest their funds in various companies without a specific focus on the size of the company i.e., a mix of small-cap, mid-cap, and large-cap. These funds are managed by a professional team of stock traders, usually led by a fund manager who works for the mutual fund provider. Their goal is to generate the maximum returns on investments by taking advantage of investment opportunities across the entire range of the market by following an aggressive and dynamic investment strategy. Explore in more detail about what are multi cap funds.

Each equity mutual fund channels the pooled investments from all its investors into the stocks of various companies.
 

Regulations mandate a specific investment approach for mutual funds. For instance, large-cap funds are restricted to investing in the top 100 companies based on market capitalisation, while small-cap funds can focus on companies ranked below 250, and so forth.
 

Remarkably, the multi-cap category stands out as it lacks a predefined structure mandated by regulations regarding the size and sector of companies it can invest in. Consequently, these funds have the flexibility to invest in large-cap, mid-cap, and small-cap stocks, with the proportion determined by the fund manager. The fund manager assesses market conditions and adjusts the allocation of large-cap, mid-cap, and small-cap stocks in the portfolio of a multi-cap mutual fund accordingly.
 

In times of economic expansion, the fund manager may increase exposure to mid-cap and small-cap stocks to capitalize on their rapid growth. Conversely, during an economic slowdown, a higher exposure to large-cap stocks may be favoured.

Before diving into investments in Multicap funds and identifying the best one to invest in, it's essential to thoroughly understand their features and characteristics.

1. Investment flexibility

Multicap funds offer a broad range of investment opportunities by combining stocks from various market capitalizations into a single portfolio. This flexibility allows your fund manager to select stocks that align with your investment goals, reducing your portfolio's reliance on any single market cap segment.

2. Versatile growth potential

These funds provide flexibility to capitalize on new opportunities across different market segments. For investors willing to accept moderate risk, Multicap funds offer growth potential without being restricted by capital size.

3. Risk management

Multicap funds help mitigate investment risks, particularly during market volatility, by eliminating capital size constraints. A well-managed Multicap fund can serve as a stabilizer in your investment strategy, balancing risk and return.

4. Enhanced returns

With access to a broad range of stocks, Multicap funds have the potential to deliver better returns. Their diverse stock selection reduces concentration risk, offering a well-rounded portfolio with potentially higher returns and lower risk.

Investors who take moderate risks and lack the motivation to investigate a specific fund in the market might want to think about investing in multi-cap schemes in order to build long-term wealth. These funds, as was already said above, have the potential to generate greater returns than large-cap funds, but they do so at the expense of mid-cap and small-cap funds.
 

The advantage of multi-cap mutual funds is the diversification and flexibility that they provide. These funds invest in companies with varying market caps and sectors, which allows them to leverage opportunities across the market to bolster their portfolios.

The crucial factor in investment evaluation lies in understanding the post-tax returns. This understanding extends to the taxation of multi-cap funds. The capital gains arising from the sale of your multi-cap fund are subject to taxation, and the duration of your investment plays a pivotal role in determining the tax implications.
 

For Short-Term Capital Gains (STCG), which encompasses gains from selling investments within one year, a 15% tax is levied. Conversely, Long-Term Capital Gains (LTCG) come into play when the multi-cap investment is held for more than one year. Notably, gains of up to 1 lakh in a financial year are exempt from taxation, while gains exceeding this threshold are taxed at a rate of 10%. This distinction in tax treatment highlights the importance of considering the holding period for optimizing tax outcomes in multi-cap fund investments.

Investing in multi-cap mutual funds offers several benefits:

1. Diversification: Multi-cap funds invest across large-cap, mid-cap, and small-cap stocks, providing diversification across market segments and reducing overall portfolio risk.
   
2. Flexibility: Fund managers have the flexibility to adjust the portfolio allocation based on market conditions and opportunities, allowing them to capitalise on emerging trends and sectors.
   
3. Adaptability: Multi-cap funds can adapt to changing market dynamics and economic conditions, making them suitable for different market cycles and investor preferences.
4. Growth potential: By investing in companies of varying market capitalisations, multi-cap funds have the potential to generate higher returns over the long term, capturing growth opportunities across different segments of the market.
5. Risk management: The diversified nature of multi-cap funds helps mitigate concentration risk associated with investing in a single market segment, providing a more balanced risk-return profile for investors.

Every investment possesses some degree of inherent risk. But multi-cap funds are known to aim for a moderate risk-return profile. They are designed to outperform large-cap and mid-cap funds when markets are rising. When markets are down, they leverage large-cap funds to provide a cushioning to control risk and mitigate adverse returns. They are less volatile than pure mid-cap funds in the long run but riskier than large-cap funds. However, a prolonged slowdown in the economy can negatively impact the growth of these funds.
 

Multi-cap funds share some risks that are common across all mutual funds, such as no guarantee or assured returns and loss of principal amount due to market volatility, interest rate fluctuations, changes in government policy, and political developments. Apart from these common factors, there are some risks that specifically relate to multi-cap funds due to their equity-based approach. These risks are a direct result of the volatility inherent in the equity market as a whole, and includes:
 

1. Risk of total loss - Multi-cap and related securities can potentially result in total loss of principal investments.
2. Price risk – Market conditions can result in daily price fluctuations.
3. Liquidity risk – Settlement periods can be unpredictably extended and the ability to sell can be restricted by overall trading volume of specific stocks in the portfolio. 

Investing in the right multi-cap fund scheme differs from person to person. It is based on various factors – the most important being the ability to bear risk and the willingness to take on the risk. Determining your own risk-profile is essential in picking the right fund/scheme. Other major factors include the financial goal and the time horizon for the investment. Some of the key factors to consider when selecting an multi-cap fund right for your needs:
 

1. Investment strategy/objective: Every fund has a declared investment strategy and objective, that explains their approach to investment. Investors should understand the approach taken by these funds so they can decide if it matches with their personal preference.
2. Match goals: Your investment goals can vary from tax savings to long term capital appreciation. Knowing this can help you find funds that can support these goals.
3. Risk vs. reward: Multi-cap funds take higher risks for proportionately higher rewards. By analyzing the risks taken by the mutual fund, investors can discover if they match with their own personal risk profile and preferences.
4. Liquidity preference: Investors should know when they will need their investment corpus. Multi-cap funds is designed for medium to long-term returns, with a minimum period of one year for any results to materialize. If your liquidity requirements are shorter than that, consider investing in debt funds instead.

It is quite easy to invest in Multi Cap mutual funds on Bajaj Finserv. Here are the steps that you have to follow:

Step 1: Choose any Multi Cap Mutual Fund and click on INVEST NOW.
Step 2: Get started by entering your mobile number and sign in using the OTP.
Step 3: Verify your details using your PAN, date of birth.
If your KYC is not complete, then you will have to upload your address proof and record a video.
Step 4: Enter your bank account details.
Step 6: Upload your signature and provide some additional details to continue.
Step 7: Choose whether you want to invest as SIP or lumpsum and enter the investment amount. Click on ‘Invest Now’
Step 8: Select your payment mode i.e., net banking, UPI, NEFT/ RTGS.
Step 9: Once your payment is done, the investment will be complete.

Your investment will start reflecting in your portfolio within 2-3 working days.

Investing in multi-cap funds on the Bajaj Finserv platform is a straightforward process, and utilising tools like the SIP calculator and lumpsum calculator can help improve your investment strategy.

Key considerations for investing in top multi-cap mutual funds in 2024:

Investment horizon: Before embarking on a multi-cap fund investment journey, it's crucial to establish clear investment objectives and a suitable time horizon. A minimum investment period of five years is generally recommended to optimize returns and mitigate short-term market fluctuations.

Expense ratio: A careful evaluation of the fund's expense ratio is essential. This annual fee, charged by fund houses, can impact overall returns. Opting for funds with lower expense ratios can potentially enhance long-term performance.

Risk profile: Multi-cap funds, by their nature, invest across various market capitalizations (large, mid, and small-cap stocks). This diversification strategy can mitigate risks to some extent, but it's important to recognize that market cycles and economic conditions can influence the fund's performance. Investors should assess their risk tolerance and align it with the potential volatility associated with multi-cap funds.