The Ultimate Guide to Multi Cap Mutual Funds: Everything You Need to Know!

Posted on Wednesday, March 12th, 2025 | By IndusInd Bank

Putting money into mutual funds can be daunting, especially when markets are unpredictable. But knowing about different fund types can help ease your anxiety and boost your confidence when making investment decisions. In this blog, we will talk about Multi Cap Mutual Funds in detail. Let’s get to the basics first:

What are Multi-Cap Mutual Funds?

Multi-cap mutual funds are equity mutual funds that invest across companies of diverse sizes—large-cap, mid-cap, and small-cap. This diversified approach allows fund managers to adjust portfolios based on market conditions, aiming for optimal returns while managing risk.

Before we delve deeper into multi-cap funds, let us address market volatility first.

Dealing with Market Volatility

Markets are inherently volatile, with stock prices going up and down. This fluctuation is a normal part of investing, influenced by economic trends, policy changes, and global events. But if we look at the historical data, it is often true that certain mutual funds have made good money even when things were shaky. Over the years, the top-performing Indian multi-cap mutual funds have often generated strong profits in just one year, proving their ability to balance risk and reward effectively.

If you want to invest in stocks but worry about market fluctuations, multi-cap mutual funds might be an excellent choice. These funds buy stocks of big, medium, and small companies. This mix lets the fund managers (people who are running the fund) change what they buy based on how the market is doing. They try to make the most money while keeping the risk low.

Features of Multi-Cap Mutual Funds

The top 3 key features of a multi-cap mutual funds are:

1. Diversified Portfolio

Multi-cap funds invest in companies of different market sizes. This spreads risk across various sectors and industries. It lessens the impact if one segment does not do well.

2. Flexibility

Fund managers can move investments between large, mid, and small-cap stocks. This allows them to take advantage of new opportunities and adjust to market changes.

3. Risk & Reward

Spreading investments helps reduce risk. However, mid-cap and small-cap stocks can bring more fluctuations. This also opens doors for huge growth.

4. Investment Horizon

Because these funds invest in various market sizes, it is best to invest for a longer time. Giving 5-7 years is advisable. This helps smooth out short-term changes and allows for higher profits.

Also Read: The Importance of Financial Planning

Types of Multi-Cap Mutual Funds

There are 3 types of multi-cap mutual funds

1. Multi-Cap Mutual Funds with a Large-Cap Focus

These funds are invested in large-cap companies, offering stability with modest growth prospects. To increase returns, the fund managers allocate a smaller portion to mid-cap and small-cap stocks.

2. Multi-Cap Mutual Funds with Mid-Cap Focus

These funds prioritise mid-cap stocks with an aim to balance stability and growth. They carry a higher risk but also have the potential to yield higher returns compared to large-cap focused funds.

3. Multi-Cap Mutual Funds with No Specific Focus

These funds maintain a balanced allocation across large, mid, and small-cap stocks, providing broad market exposure and aiming to capitalise on opportunities across the spectrum.

Advantages of Investing in Multi-Cap Mutual Funds

1. Facilitates Diversification & Asset Allocation

Investing across various market caps and sectors helps in spreading risk and reducing the impact of any single underperforming asset.

2. Easy for Novices

Multi-cap funds offer a one-stop solution for investors seeking diversified exposure without the need to select multiple funds.

3. Provides Exposure to Varied Sectors

By making investments across a variety of businesses, these funds enable investors to profit from the growth of many economic sectors.

Difference Between Multi-Cap Mutual Funds and Flexi-Cap Mutual Funds

While both fund types offer diversified investments, they differ in structure and strategy. Let us take a quick look at their differences below:

Tax Treatment of Profits Booked on Multi-Cap Funds Mutual Funds

Comprehending the tax implications is essential for effective financial planning:

1. Tax on Capital Gains

a. Short-Term Capital Gains (STCG): The government taxes gains at 15% if the units are sold within a year.

b. Long-Term Capital Gains (LTCG): Gains up to ₹1 lakh are tax-exempted every year for units held for more than a year. The tax rate on gains exceeding this threshold is 10% without indexation.

2. Dividend Tax:

Dividends received on mutual fund investments are added to your taxable income and taxed as per your applicable income tax slab.

Also Read: Union Budget 2025 Expectations: How It Will Impact the Stock Market and Investors

Wrapping up By fusing the stability of large-cap corporations with the growth potential of mid- and small-cap firms, multi-cap funds provide a well-rounded approach to equity investment. Because of their diversification, they are a desirable choice for investors who want to use a single fund to manage market volatility. But it is crucial to match your investment decisions with your risk tolerance and financial objectives. To make wise financial decisions, you must also think about speaking with a SEBI-certified financial advisor.