Multi-Cap Funds for Long Term Investment

Multi-cap mutual funds offer an investment option that deals with multiple stocks in specific proportions instead of one. As a result, these funds are less risky and can be invested across sectors. Multi-cap funds are best suited for customers who have a low-risk appetite.

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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.

FAQ's

  • Q. What is the minimum amount required for investment in multi-cap funds?

    Ans: Just like any other mutual fund, multi-cap also does not require a large sum of money to start your investment. SIPs can start as low as Rs 100 to invest in any multi-cap fund.
  • Q. How to choose the fund suitable for you?

    Ans: Choosing a suitable scheme is based on varied aspects of investment:
    • Your needs and requirements - Make sure to be very clear of your fund objective.
    • Also, evaluate the risk factor involved
    • Research well on the return potential
  • Q. Is it a good choice to invest in multi-cap funds?

    Ans: Multicap funds are usually high-performing and better wealth creators than other categories. You can earn better returns by investing in small companies with high growth potential. The risk is balanced by investment in large-cap companies at the same time. 
    It makes the overall risk factor associated with multi-cap moderate while the returns remain high. The multi-cap also suffers the same risk for the short term, but the returns become less volatile over the long term. 
  • Q. What is a mutual fund dividend?

    Ans: Dividends are distributions from earnings from a mutual fund. These dividends are tax-free at the hands of the investor, but a DDT (dividend distribution tax) is deducted at the source.
  • Q. Can I withdraw my money from a multi-cap fund?

    Ans: There is no limit on the number of withdrawals you can make in an open-end scheme. Also, you can withdraw anytime. The only negative side of this withdrawal could be a short-term capital gain tax obligation.
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