Everything you need to know about multi cap funds

When it comes to investing for wealth creation, diversification is essential. Investors who wish to build a large corpus for any of their long term financial goals need to have a long term investment horizon. Creating wealth is a steady process and one must ensure that they save and invest a fixed sum regularly so that in the long run they are able to save enough so that they can buy a new house or build a commendable retirement corpus or secure their child’s financial future or build a wedding corpus their daughter. These days a lot of individuals are considering mutual funds for targeting their life’s long term financial goals.

If you have a high risk appetite and a long term investment horizon spanning over 5 years or more, you can consider investing in multi cap funds. Today we are going to discuss multi cap funds and everything that you need to know about this equity mutual fund.

What is a multi cap fund? 

A multi cap fund is an open ended mutual fund scheme that predominantly invests in stocks of companies across market capitalization to achieve its investment objective. Of its entire portfolio, a multi cap fund invests 25 percent each in small cap stocks, mid cap stocks, and large cap stocks. The remaining 25 percent of the investment portfolio is allotted to other equity or debt related instruments.

Multi cap schemes offer diversification

Multi cap scheme offers true diversification as it invests in credible stocks of companies spread across various sectors, industries, and markets. Unlike other equity funds like large cap, mid cap and small cap which have maximum exposure to one single market cap, multi caps have no such mandate and hence can explore investment opportunities and benefit from the growth and success of companies across market capitalization. Since multi cap funds invest in a diversified portfolio of stocks, investors might be able to mitigate their investment risk and maximize returns in the long run.

How are multi cap funds different from flexi cap funds?

Since market regulator SEBI has introduced flexi cap funds, there is a lot of confusion among new as well as seasoned mutual funds investors who feel that both these funds are similar. However, that is not true at all. A multi cap fund must mandatorily invest 25 percent each across three market caps. In the case of flexi cap funds, there is no such mandate, and the only mandate is that the fund manager must invest a minimum of 65 percent of its total investible corpus in mid cap, large and small cap markets.

Who should consider multi cap funds?

Investors who are unsure about which equity fund to invest in can consider multi cap funds as they try to combine the best stocks of three different market caps. Investors who wish to add some liquidity to their portfolio can consider these funds as well. If you are someone who only invests in debt assets and is considering an equity fund that carries a well-diversified portfolio then you can consider multi cap funds. However, all those who invest in multi cap funds must have a very high risk tolerance and the willingness to invest for a minimum duration of 5 years so that their investments are able to maximize profits.

How to invest in multi cap funds?

SIP and Lumpsum – these are the two different ways in which investors can invest depending on their current financial situations and their ultimate financial goals. They can even use the SIP calculator to calculate the total returns they can potentially earn by starting a monthly SIP in multi cap funds for a said duration.

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