#AD
The Securities and Exchange Board of India (SEBI) has specific rules for all mutual fund schemes. The funds need to stick to stocks that are defined for their portfolio. For example, large-cap funds have restrictions and mandates to invest primarily in large-capital stocks. There are similar constraints for mid-caps and small-caps as well. However, in a multi cap fund, the fund assets can be allocated to stocks of various capital sizes. You can learn about the types of multi-cap funds in this article along with the benefits.
What is a Multi Cap Fund?
Multi cap fund is a type of equity mutual fund that invests in companies across all three market capitalisations. As per SEBI rules, these funds need to invest at least 75% of their assets in equities and equity-related investments.
Another important requirement is that the portfolio of a multi-cap fund must maintain at least 25% exposure to large-cap, mid-cap, and small-cap stocks. Additionally, these equity investments are sector-agnostic, which means that fund managers can pick stocks of appropriate market caps from any industry or sector.
The unique mandate of these funds allows them to diversify investment portfolios across large, small, and mid-cap companies without focusing on one particular sector. Investing in multi-cap funds allows you to introduce asset allocation into your portfolio without the hassle of tracking and choosing multiple mutual funds.
Types of Multi Cap Fund
In the long run, multi-cap funds can be potential wealth creators since they can tap into investment opportunities across the market. They can be classified into the following categories based on their exposure to a particular segment of the capital market:
Large-cap Focussed Multi-cap Funds: These funds invest more than 25% of their assets in large-cap stocks. Portfolios of these funds are meant to provide stability and balance when markets are down. By investing in large-cap stocks first, they secure the portfolio, then explore growth opportunities in mid and small-cap stocks.
Small/Mid-Cap Focussed Multi-cap Funds: To generate higher gains, these multi-cap funds have a more aggressive approach with a larger exposure to mid-cap and small-cap stocks. Large-cap stocks are only intended to counterbalance downside risks.
No Specific Focus Multi-cap Funds: Apart from the mandatory 25% investment in each capitalisation, these multi-cap funds do not target any particular segment. Stocks that are likely to outperform are targeted by fund managers and investments are made across a range of sectors.
Benefits of Multi Cap Fund
Now that you’ve understood the meaning and types of multicap funds, let’s look at the benefits they offer to investors. Here are the benefits of investing in this fund:
Portfolio Diversification: A diversified portfolio is offered by multi-cap funds as they invest across companies of different sizes and sectors. By diversifying your investments, you lower your investment risk. This is because different sectors and segments of markets can perform differently at any given time, so spreading investments out keeps the risk low.
Exposure to Key Sectors: As these funds don’t focus on one particular market cap or sector, you get exposure to all the key sectors and companies driving the Indian economy forward. You get to take advantage of a market investment opportunity.
Portfolio Modification: These funds have the flexibility to change the portfolio composition based on market conditions by deciding the mix between large, mid, and small caps. When mid and small-cap stocks are overvalued and it appears they are headed for a large market cap, the fund manager can take a defensive position in large caps.
Convenient for Beginners: Choosing a mutual fund scheme that aligns with your investment goals can be challenging. New investors may find it difficult to determine which mutual fund is right for their risk profile. Beginners can solve this confusion by investing in a multi-cap fund, which distributes investments almost equally among large, mid, and small-cap stocks. Beginners can easily invest in mutual funds through a mutual fund app.
Conclusion
According to the SEBI mandate, multi-cap funds invest 75% of their assets in equities and related instruments, with at least 25% allocated to large, medium, and small companies. A major advantage of this fund is its flexibility and diversification across all sectors and capitalisations. Multi-cap funds offer a blend of all capital markets, providing you with a reasonable return while balancing the risks. Since they invest in companies across a range of market caps and sectors, it allows investors to leverage opportunities across different markets, which is beneficial for diversifying portfolios. The long-term investor may consider investing in these funds.
Note: Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.
Past performance may or may not be sustained in future.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
Market caps are defined as per SEBI regulations as below: a. Large Cap: 1st -100th company in terms of full market capitalization. b. Mid Cap: 101st -250th company in terms of full market capitalization. c. Small Cap: 251st company onwards in terms of full market capitalization.
