Multi Cap Mutual Funds: Gate To Diversification and Growth Potential

Investment decisions are sometimes full of difficult questions. Should you choose large-cap funds for more stability or low-cap schemes for faster growth? While many investment professionals advise you to examine your risk tolerance before making such selections, the reality is that our risk tolerance is not readily classified as low, high, or even medium.

As a result, a large-cap, small-cap, or mid-cap fund may not be suitable for your risk profile. This is where multi-cap mutual funds come in. We’ll now look into Multi Cap Funds and the numerous variables you should know about them.

Understanding Multi Cap Funds

As the name implies, Multi Cap Funds invest their assets in a portfolio of equity and equity-related stocks from companies with diverse market capitalizations. A Multi Cap fund will invest in companies with large, small, and mid-cap sizes. Every plan invests in varying quantities, making the Multi Cap Fund category an excellent choice for matching your risk tolerance.

When you invest in a large, small, or mid-cap fund, the fund managers are bound by the portfolio definition. This means that a large-cap fund manager cannot invest in shares of a small-cap firm, even if the prospect is attractive. As a result, a Multi Cap fund is thought to be a better option for wealth building because its fund managers may take advantage of investing possibilities across the market. Additionally, every investor can locate a Multi Cap program that meets his financial requirements.

Best Multi Cap Mutual Funds To Invest In 2024

  • Kotak Multicap Fund – Reg – Growth 41.80%
  • Nippon India Multi Cap Fund – Reg – Growth 41.40%
  • HDFC Multi Cap Fund – Reg – Growth 41.30%
  • ITI Multi Cap Fund – Reg – Growth 41.30%
  • Axis Multicap Fund – Reg – Growth 39.00%
  • Mahindra Manulife Multi Cap Fund – Reg – Growth 37.60%
  • ICICI Prudential Multicap Fund – Growth 37.20%
  • Union Multicap Fund – Reg – Growth 33.90%
  • Sundaram Multi cap Fund – Growth 32.90%
  • LIC MF Multi Cap Fund – Reg – Growth 32.80%

Also See Best PSU Stocks List For Your Investment Journey In India

How Does a Multicap Mutual Fund Work?

Multi Cap Funds

Mutual funds are required by law to follow a specific investment plan. A large-cap fund can only invest in the stocks of the top 100 market capitalization companies. Small-cap funds, for example, can invest in companies ranked below 250, and so on.

However, Multi Cap is the only category that does not have a regulatory structure that regulates the size and industry of the companies in which it may invest. As a result, these funds focus on large, mid, and small-cap shares. The proportion of these stocks may now vary. It is up to fund management.

They evaluate market conditions and adjust the proportion of large-, mid-, and small-cap companies in a Multi Cap mutual fund’s portfolio accordingly.

When the economy is growing, the fund manager can increase his or her exposure to mid- and small-cap firms to take advantage of their rapid growth. When the economy slows, they may boost their holdings of large-cap stocks.

Types of Multicap Mutual Funds

While there are no official titles for them, Multi Cap funds can generally be classified into the following types:

Concentrated on large-cap stocks.

These programs prioritize investing in large-cap segments while also exploring small and mid-cap shares.

Concentrated Funds for Small and Mid-Cap Companies

These funds actively seek investing opportunities in the small or mid-cap divisions, and they only invest in large-cap equities to protect themselves from a drop in the other category.

No specific concentrations.

These schemes seek investing opportunities across market capitalizations, with a clear focus on identifying equities that can outperform.

Multi Cap Funds

Characteristics of a Multicap Fund

The main features of these funds are:

  • A Multi Cap fund invests in equities and equity-related derivatives from companies with various market capitalizations. In addition, the fund management is constantly looking for new ways to diversify the investment in order to meet the scheme’s objectives. As a result, the fund manager plays an important role in the success of these schemes.
  • A Multi Cap fund, by definition, invests in equities of large, mid, and small-cap corporations. As a result, these schemes are more risky than large-cap funds, which invest largely in huge corporations.
  • These funds have long-term investment horizons. If you want to build wealth over time and have a moderate risk tolerance, you should consider investing in Multi Cap Mutual Funds.

Read Also | Best Flexi Cap Mutual Funds To Invest In 2024 – Complete Analysis

Reasons To Invest In Multi Cap Funds

Investing in multi-capital funds can provide various benefits for a wide range of investors, but it is not a one-size-fits-all option. Here are some important reasons why you should consider multi-capital funds:


  • Multi-capital funds invest in firms of various sizes, ranging from large-cap blue chips to small growth companies. This diversity helps to disperse risk and mitigates the impact of volatility in a particular market area.

Potential for higher returns:

  • Multi-capital funds can provide a balance of stability and growth potential by investing in both stable large-cap stocks and potentially high-growth mid- and small-cap stocks. Over time, they have the potential to beat pure large-cap funds while avoiding the volatility of mid- or small-cap funds.

Automatic rebalancing:

  • Multi-capital funds automatically modify their asset allocation based on market conditions, ensuring that your portfolio is balanced and in line with your investing objectives. This saves you the time and effort required to manually rebalance your portfolio.


  • Investing in a single multi-capital fund gives you access to a diverse portfolio spanning market capitalizations, avoiding the need to study and invest in individual stocks or several funds. This may be a useful choice for busy investors or those new to investing.

Taxation Rules of Multi Cap Mutual Funds

When you redeem your Multi Cap Fund units, the capital gains you earn are subject to capital gains tax. Additionally, any dividend you get is subject to Dividend Distribution Tax, or DDT.

Capital Gain Taxes

  • When you sell the scheme’s units and make a profit, you must pay capital gains tax. The tax rate changes depending on how long you owned the units before selling them, as explained below:

STCG: Holding term<1 year. Tax = 15%

LTCG: For holding periods of more than one year, up to one lakh is tax-free, but anything above that is taxed at 10% without indexation.

Dividend Taxes

  • All fund houses are mandated to deduct tax (DDT) of 10% before paying out dividends to unitholders.

Some information regarding taxation rules is taken from

Multi Cap Funds

SEBI’s New Rules Regarding Multi Cap Mutual Funds

The new rules has been updated by SEBI as of September 2020. Some of the main highlights have been mentioned below,

1. Multi-cap funds must invest at least 75% of their total assets in equities and equity-related derivatives. Currently, the regulation is to invest a minimum of 65% in equities.

2. The minimum investment of 75% in stock and equity-related securities must be made in the following manner:

  • Minimum allocation to large cap businesses is 25%.
  • Minimum allocation to mid-cap businesses is 25%.
  • Minimum allocation to small-cap companies: 25%.

At the moment, fund managers of multicap mutual funds can invest across market capitalisations as they like.

4. The top 100 stocks by market capitalization are classified as large cap companies, the 101st to 250th as mid caps, and the 251st as small cap stocks.

5. The Sebi has given mutual fund houses until January 31, 2021 to comply with the updated rules, within one month of Amfi releasing the next list of large, mid, and small cap stocks.

6. Most multi-cap funds’ portfolios are currently tilted toward large caps, with large cap equities accounting for 65% to 90% of the portfolio. According to the most recent rules, mutual funds cannot invest more than 50% of their assets in large caps.

Wrap Up

To wrap it up, Multi-capital mutual funds are an appealing option for experienced investors looking for wide exposure and the possibility for higher returns. These diversified vehicles strike a careful mix between the stability of large-cap blue chips and the development potential of mid and small-cap companies, making them ideal investing strategies. While exposure to smaller, more volatile segments adds risk, multi-cap funds lessen it through careful asset allocation and rebalancing, possibly producing higher average returns over full market cycles. However, thorough due diligence and alignment with personal risk tolerance are required before deciding about this multifaceted financial journey.