Who Should Invest in Multi Cap Mutual Funds?

A multi-cap is a type of mutual fund that invests in stocks with different market capitalizations which include large-cap, mid-cap, and small-cap. Multi-cap funds are better for investors who want a diverse portfolio without picking stocks. This category includes 29 schemes managing assets worth Rs. 1.82 lakh crore.

As per the SEBI rules, multi-cap schemes invest 25% each in large-cap, multi-cap and small-cap stocks, while the fund manager chooses where to invest the remaining amount. Fund managers can select stocks from any industry or sector as long as they meet the market capitalization requirements. Companies ranked 1-100 by market capitalization are large-caps, those ranked 101-250 are mid-caps, and those above 250 are small-caps.

Most inexperienced or new investors are not sure about when or how to invest in large, mid, and small-cap funds. If they only invest in large-cap schemes and small or mid-cap stocks perform well, they could miss out on potential gains. That is why financial planners recommend that investors with a long-term horizon (10 years or more) consider multi-cap funds, which invest across the entire market spectrum and capture opportunities in all sectors.

Long-term investors who do not want to deal with picking individual stocks but still want to invest in mid-cap and small-cap sectors can consider multi-cap funds. Financial planners also suggest this category to those people who are looking for a single investment that covers all types of companies, such as large, mid, and small. With these funds, investors can build a big corpus over time. Multi-cap funds are also good for first-time investors or those using Systematic Investment Plans (SIPs) to invest in stocks. However, conservative investors who are not comfortable with market ups and downs may still prefer to stick to the large-cap funds.