A Simple Guide to Multi-Cap Mutual Funds

Investing in Multi-Cap Mutual Funds serves well for investors who are willing to take a risk and not go behind the guaranteed return.

According to Market Capitalization, Equity can be classified as Small-Cap, Mid-Cap, Large-Cap, and so on.

But some new investors often get confused with the Flexi-Cap and Multi-Cap categories of Mutual Funds. Because the functions of both mutual funds look similar.

It’s time that we understand the difference between the two categories of Mutual Funds.

Table of Contents:

1.) What is Multi-Cap Mutual Fund?

2.) What are the benefits of Multi-Cap Mutual Funds?

3.) How do we maximize our benefits in Multi-Cap Mutual Funds?

4.) Flexi Cap Fund Vs Multi Cap Fund:

5.) How do we know whether this Mutual Fund suits our investment portfolio?

6.) What is the tax liability of Multi-Cap Mutual Funds?

What is Multi-Cap Mutual Fund? 

In this category of a mutual fund, 75% of the asset has been invested in purchasing equity and equity-related instruments

These assets get invested across different categories of companies which would be beneficial for investors in a long run.

This Mutual Fund also helps investors to diversify their investment portfolio.

A multi-cap fund must invest a minimum of 25% in Large Cap, 25%in Mid Cap, and 25% in Small Cap stocks.

The remaining 25% is left to the choice of the fund manager. Based on his market outlook, the fund manager can decide where to invest the remaining asset.

What are the benefits of Multi-Cap Mutual Funds?

If you are an investor who is looking to diversify your investment portfolio by investing across market capitalization, then investing in a Multi-Cap mutual fund could be a good option for you.

The following are some of the key features of this Multi-Cap Mutual Fund.

• It can invest across different categories of companies belonging to various sectors.
• This Mutual Fund can generate an inflation-beating return in the long run.
• The flexibility option enables us to maximize our return on investment.
• It is less volatile and more stable in comparison with Small Cap Mutual Funds.

How do we maximize our benefits in Multi-Cap Mutual Funds?

Since it invests across multiple categories of equity stocks, as investors we can’t expect a stable return. 

It is highly beneficial for investors looking to achieve their long-term financial goals as it has the potential to generate an inflation-beating return in a long run.

Flexi Cap Fund Vs Multi Cap Fund:

How do we differentiate between Flexi-Cap & Multi Cap?

The functions of both Flexi Cap & Multi Cap are similar. But if you see closely, the features of both Mutual Funds are different.

If you choose to invest in Multi Cap Mutual Fund then the fund will invest a minimum of 25% in Small-Cap, 25% in Mid-Cap, and 25% in Large-Cap Mutual Funds.

The fund manager will be given the flexibility of investing the remaining 25% based on the current market condition.

But in Flexi-Cap Mutual Funds, 65% of the assets get invested across Large-Cap, Mid-Cap, and Small-Cap Mutual Funds.

Flexi-Caps could increase or decrease their share in a particular segment based on its performance and market condition at any given time.

So, in a flexicap fund, the fund manager has been given the flexibility of investing the entire money based on his market outlook.

How do we know whether this Mutual Fund suits our investment portfolio?

Here are a few factors you should consider before investing in this Multi-Cap Mutual Fund.

• It poses a lesser risk in comparison to small-Cap Mutual Funds.
• It gives a less stable return in comparison to Large –Cap Mutual Funds.
• It is risky for investors looking to achieve Short Term Financial Goals.
• The time horizon of this particular Mutual Fund is from 5 to 7 years.

What is the tax liability of Multi-Cap Mutual Funds?

Now let’s discuss the tax liability of this Multi-Cap Mutual Fund.

If the holding period is less than or equal to one year then it is termed as Short Term Capital Gain, which attracts a tax of 15% on the gain.

Whereas if the holding period is more than one year then it is called Long Term Capital Gain.

Suppose let us say that your Long Term Capital Gain is lower than 1 lakh, then your capital gain will be exempted from tax. 

If it exceeds more than I lakh then there will be a 10 % tax on your capital gain.

The video here will help you understand in depth the concept of Multi-Cap Mutual Funds.

What is a Multi-Cap fund? – Watch here !

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