Multi-Cap Funds for Long Term Investment

What makes multi-cap funds one of the most sought-after schemes is their market capitalisation agnostic feature. It means that it is easy to switch the scheme across different industry segments. 

What Are Multi-Cap Funds?

Multi-cap is the fund that can be invested across all market capitalizations. However, these funds must hold75% of their total asset in equity and its related instruments.

Market Capitalisation Agnostic allows the fund managers to freely change the fund's exposure and benefit out of the changing market scenarios. This free flow between different industries also helps the fund managers to manage their risk.

Multi-cap funds are better at generating higher returns at lower risk as they combine the stability and growth potential of large, mid, and low cap companies.

Features of Multi-Cap Funds

Mutual funds are meant to help you achieve your individual and your family's financial goals and generate an alternate source of income at the same time. 

Features of multi-cap mutual funds include:

• It enables the investors to distribute their stock in varied sectors to minimize the risk. This scheme allows wholesale investors to put their sum in large, medium, and small industries depending on their preference.

• Multi-cap funds are ideal if you have a significantly low appetite for risk or are new to investments. 

• These schemes do not have any time constraints, neither do they run for long like large-cap funds.

• The low-risk feature of multi-cap will allow you to retain your investment value for a long time and gain returns.

Who Is It Suited For?

If you fall under one or more of the categories, this fund is for you:

• If you are a novice in investment and are not aware of the basic functioning of the investment market, multi-cap is an ideal scheme for you. Once you get the hang of markets, you may switch to pure cap funds.

• You, as a customer, are averse to risk or prefer moderate risk. It is often shown that risk and return are two sides of the same coin, but it needs to be noted that higher return will not automatically translate to high risk.

• The tenure of multi-cap funds is such that it is for people who do not want to invest in short-term mutual fund schemes but at the same time are also not looking for long-term financial commitments.

• It is also suitable for investors who want to invest in large-cap schemes in the future but currently do not have a plan in action.

Taxability and Other Advantages

Multi-cap funds are taxed like any other equity fund. Your gains are added to your total income and taxed as per the slab you fall under. The rate of your tax will depend upon the holding period of your fund. All long-term gains up to Rs 1 lakh are exempted from tax but gains above this limit are taxed at 10%. In the case of short-term gains, returns are taxed at 15% without considering your income tax slab.

Other advantages of multi-cap funds include:

• Helps first-time investors by reducing the risk considerably

• Provides more investment opportunities across varied market segments

• Sustainable returns for up to 7 years

Points to Remember

Here are a few things you must keep in mind before taking the final call:

• Fund objectives must be kept in mind before investing in a multi-cap fund. Multi cap maintains a good portfolio of investments offering a combination of quality stocks of high growth, risk, and value.

• Multi-cap funds also face market risk, but this risk is reduced considerably by the fund manager who is skilled at taking advantage of market trends.

• The expense ratio is charged from overall returns earned by the fund. It is the fund charged by MF to manage your money. The expense ratio of multi-cap schemes is capped at 1.05% by SEBI.

• Multi cap funds are suitable for medium or long-term investments. Hence, you must choose to be prepared to invest your capital for the required time.

• The dynamic investment makes multi-cap funds ideal wealth creators. But ensure to keep track of fund performance in the form of annual returns. Otherwise, you may not be able to understand how your fund is performing.

Top Five Mutual Fund Schemes

1. Axis Multi-Cap

   Axis Multi-cap is focused on improving risk and generating faster growth. The scheme uses a bottom-up approach to identify stocks at their inflexion points.

   Asset size	Rs 7099 crore (as of 30.11.2020)
   returns	1 year	3 year	5 year	7 year
   fund	16.72	13.68	-	-
   benchmark	16.48	7.81	12.72	14.20
   category	13.90	5.82	10.97	14.52

2. SBI Magnum Multi-cap

   SBI Magnum Multi-cap also uses the bottom-up approach to select stocks. Over the years, this fund has proved itself to be a trusted choice for its customers, with its benchmark returns subsequently in most market cycles in the last 15 years of its inception.

   Asset size	Rs 9863 crore ( as of 30.11.2020)
   returns	1 year	3 year	5 year	7 year
   Fund	11.97	5.30	11.26	16.62
   Benchmark	16.48	7.81	12.72	14.20
   Category average	14.20	5.82	10.97	14.52

3. ICICI Prudential Multi-cap

   It is another remarkable equity mutual fund that has performed considerably well in the past year with 68.71% returns. The minimum  SIP/ lumpsum stands at 100/5000 for this scheme. This scheme uses a combination of both bottom-up and top-down approaches for stock selection and chooses to invest in companies that have a high probability of transforming into market leaders in the future.

   Asset size	Rs 5847 crore (as of 30.11.2020)
   Returns	1 year	3 year	5 year	7 year
   Fund	8.24	4.62	10.03	14.05
   Benchmark	16.48	7.81	12.72	14.20
   Category average	13.90	5.82	10.97	14.52

4. Invesco India Multi-cap

   Invesco India Multi-cap is flexible and can change its exposure to different market capitalization. The scheme has a long-term outlook and chooses to invest only in ideas having high conviction. The stock selection of Invesco India multi-cap is sector-neutral, and the emphasis is on the bottom-up approach.

   Asset size	Rs 1035 crore ( as of 30.11.2020)
   returns	1 year	3 year	5 year	7 year
   Fund	17.44	2.24	9.85	16.52
   Benchmark	16.48	7.81	12.72	14.20
   category	13.90	5.82	10,97	14.52

5. Nippon India Multi-cap

   Nippon India multi-cap is a trend-based flexible fund. Utilizing this flexibility, the scheme retains its strength in specific market capitalization. In the last year, the scheme has produced 81.71% returns.

   Asset size	Rs 5874 (as of 30.11.2020)
   returns	1 year	3 year	5 year	7 year
   Fund	8.24	4.62	10.03	14.05
   Benchmark	16.48	7.81	12.72	14.20
   Category average	13.90	5.82	10.97	14.52

In Conclusion

Multi-cap funds perform well owing to their multiple investment options and opportunities across sectors and industries. However, investors should carefully evaluate their investments and current exposure before investing in a multi-cap scheme. It is a scheme suitable for people who are into low-risk investments.

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