Understanding Multi-Cap Funds

There are many different investment options available in the market and a mutual fund is one of them. Mutual funds offer flexibility and promise higher returns with low risk. When investing, there are different fund categories you may choose from.

What is a multi-cap fund?

Multi-cap fund is a diversified mutual fund that invests across different stocks in the market of different market capitalization. The investment portfolio consists of small-cap, mid-cap, and large-cap stocks.

Why should you invest?

The biggest advantage of investing in a multi-cap fund is the creation of a hybrid portfolio investing across different market capitalization. This means that there is a minimal risk on the investment and the portfolio is diversified.

Who should invest?

Investors with a low-risk appetite should invest into multi-cap funds since the portfolio is diversified and the risk is distributed among different stocks of different market capitalization.

Is there any tax liability?

Multi-cap funds are equity schemes, which means the long-term capital gains will be taxed on the same. Short-term capital gain is taxed at 15% and long-term capital gain on sale of shares is taxed at 10% for an amount exceeding INR 1 lakh in a financial year.

Things to consider while investing

When investing in multi-cap funds, there are a few rules to be kept in mind. It is important to consider your risk appetite and the duration of your Investment before choosing a fund. Every fund allocates the investment amount into different stocks and your risk appetite decides what fund you pick.

It is not advisable to pick the same funds in a category, as this will not enable diversification. Furthermore, you should limit your investment to a single fund in each category.

How should you select a multi-cap fund?

You need to select the fund based on your Investment duration and your risk appetite. Once you decide on the type of funds you wish to invest in, you may evaluate the same based on the past performance, future expected results based on the current economic situation and market conditions.

Pick funds that have performed well in the past. Weigh the expected results of the fund against its actual past performance to make a well-informed decision. The past performance may vary over different periods and, therefore, you should consider a duration of three to five years for the same.

Characteristics of multi-cap funds

Multi-cap funds are known to be flexible compared to other types of investment. They provide the flexibility that investors look for and allow fund managers to choose stocks that match the investment objectives without the restrictions of capitalization size.

Multi-cap funds are less risky compared to pure mid cap and small cap funds, and so they are popular with investors, who do not seek aggressive returns. The risk is low and mitigated during volatile market situations because of investment in different types of stocks.

What are the best multi-cap funds?

We have listed down few of the best multi-cap funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:

• UTI Equity Fund Growth
• SBI Focused Equity Fund Growth
• ICICI Prudential Multi-Cap Fund Growth
• Reliance Multi-CapFund Growth
• HDFC Equity Fund Growth

Comparing different types of funds

It is important to understand the different types of funds available in the market. Large-cap funds invest into companies with a higher market capitalization. They are less volatile.

Mid-cap funds invest into medium-sized companies and are riskier than large-cap funds. Small cap funds invest into small-sized companies and tend to be more volatile and riskier than large-cap and mid-cap funds.

You should choose the fund based on your long-term investment goals and ability to withstand risks.

Common mutual funds investment mistakes

To ensure the investments you make help you toward a financially secure future, you must avoid certain investment mistakes that a lot of newcomers end up making. Mistakes such as:

Not Having Financial Goals:

Not having a financial goal in mind is probably the biggest mistake an investor makes while investing. If you are not clear about the outcome you want, you will end up taking a decision that will do more harm. Investing without creating a goal is similar to travelling without having a destination in mind.

Not Checking Risk and Asset Allocation:

Lack of research about a particular scheme and its past performance always leads to bad investment decisions. Your decision to invest should depend on your financial goal, risk-appetite and investment period. Ideally, you should start investing in funds that are less volatile and check the long-term returns of those funds.

To read the entire list of common mistakes that you should avoid, check out 10 mistakes to avoid while investing in mutual funds.

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