We invest in different categories to achieve our goals through Mutual Funds. One of these mutual fund category is Multi Cap Fund which is very popular among investors.
You invest in large cap, mid cap and small cap funds but for some investors these funds are not according to their risk power. In this dilemma, Multi Cap Mutual Funds can give you an extra edge.
Therefore, you must have a Multi Cap Fund Mutual Fund in your portfolio. Some changes have also been made by SEBI in 2020 in the Multi Cap Fund category.
Today, through this article, we will give you information about what are multicap funds, what are the benefits of multicap funds and what is the difference between multi cap funds and flexi cap funds.
What are Multi Cap Funds
As the name of this fund suggests, multicap funds are made up of more than one category of fund which are companies of different market capitalization. It is a combination of large cap, mid cap and small cap.
If understood in simple language, multicap funds invest in stocks of all three types of capitalization, large cap, small cap and mid cap. Thus Multi Cap Funds give you the advantage of all three in one fund.
Multi Cap Fund Asset Allocation
Asset allocation means where the fund manager will invest the money deposited by the investors in the mutual fund scheme.
According to the new rules of SEBI, 25-25% will have to be held in large cap, mid cap and small cap in multi cap funds. The fund manager needs to have a minimum investment of 75% equity and equity oriented funds.
Suppose the fund manager has a total of ₹100 of investors. Here the fund manager has to invest a minimum of ₹75 in equity and equity oriented funds. In which Rs 25-25 will have to be invested in all three large cap, mid cap and small cap.
Benefits of Multi Cap Funds
1. Flexibility- Multi cap categories are quite flexible due to investing in companies of every market capitalization. The fund manager has the freedom to choose any category of funds.
2. Moderate Risk- There is always volatility in the stock market due to which there is regular fluctuation in it. In such a situation, investors invest in multi cap funds to get out of this volatility.
These funds are considered best for investors who like to take moderate risk.
3. Impactful- Multi cap funds are funds that look for more growth opportunities in the high market. While trying to minimize the negative impact in the falling market.
4. High Returns- Multi Cap Funds have great potential to deliver returns due to their diversified portfolio. These funds are considered good for all types of investors.
Risk in Multi Cap Funds
By investing in different categories of stocks, the risk in multi cap funds gets diversified. Multi cap funds carry moderate risk, neither the quantum of risk is very high nor very low.
These carry less risk than small cap funds and more than large caps. Due to moderate risk, they are quite consistent in delivering returns as compared to other funds.
Multi Cap Funds vs Flexi Cap Funds
In 2020, SEBI made some changes in the asset allocation of multi caps and also launched a new category Flexi Cap Fund. After the introduction of flexi cap category, many fund houses changed their multi cap fund category to flexi cap fund category. for example –
Kotak Standard Multi Cap Fund- Kotak Flexi Cap Fund
Parag Parikh Long Term Equity Fund- Parag Parikh Flexi Cap Fund
Motilal Oswal Multi Cap 35 Fund- Motilal Oswal Flexi Cap Fund
Difference Between Multi Cap Funds and Flexi Cap Funds
|Multi Cap Funds||Flexi Cap Funds|
|Minimum investment in equity and equity oriented funds||75%||65%|
|Asset Allocation||Large Cap – 25% – Mid Cap – 25% – Small Cap – 25%||As per fund manager|
There are certain restrictions in asset allocation in multi cap funds whereas in flexi cap funds the fund manager can invest in large cap, small cap and mid cap as per his wish.
In actual terms, the features that were there in the old Multicap category have now been put in the Flexi Cap category. So many fund houses had to convert their old multi cap scheme to flexi cap category especially those whose AUM was very high.
Which investors should invest in Multi Cap Funds?
Multi cap funds carry less risk than small cap funds and higher risk than large cap funds. Risk and return always go together. You will get returns according to the risk taken by you.
With more risk, there is a possibility of getting higher returns. If you want higher returns than blue chip funds and also cannot take the same risk as small cap funds, then multi cap funds can be the best option for you. At the same time, it also provides diversification to your portfolio.
One should always buy multi cap funds with a long term vision.
Should You Invest in Flexi Cap Funds?
If you want a scheme in which there is no restriction on the fund manager as to what percentage he has to invest in which type of funds. Flexi Cap funds are free to choose from so that the fund manager can invest your money in stocks with good opportunities as per his wish.
Flexi cap funds also carry moderate risk. If you want exposure to all types of stocks in your portfolio, then you can definitely choose Flexi Cap Fund.
Limitations of Multi Cap Funds
Investing in multi cap funds has many advantages but also some limitations.
- In this, the fund manager has to face restrictions regarding the selection of stocks. The fund manager has to allocate the minimum share in all the categories.
- If the size of the fund becomes too large, the fund manager may face difficulties in fund allocation.
- Equal fund distribution among companies of all market capitalization can increase the degree of risk. Also, negative effects can be seen on returns.
Flexi Cap Fund Limitations
Due to the freedom to choose the fund, the mutual fund portfolio of the fund manager can have more number of stocks in the same category.
For example, if your Flexi Cap Fund has more than Large Cap Funds then you will not get any benefit of Flexi Cap. In this your portfolio will be more large cap oriented than flexi cap funds. Thus, you may get more funds of one category in this, which can have a negative impact on your returns.
Returns of Multi Cap Funds
When it comes to returns, we look at the actual returns of some of the popular multi cap funds from the data.
|Mutual Fund (Regular Plan)||3 Yr.||5 Yr.||10 Yr.|
|ICICI Prudential Multi Cap Fund||8.66%||12.58%||14.34%|
|Nippon India Multi Cap Fund||6.12%||10.29%||11.85%|
|Principal Multi Cap Growth Fund||6.65%||14%||13.04%|
In this way, multi cap fund averages have the potential to give 12 to 13% returns in 10 years. You can get 1 to 2% more returns in the direct plan. Now after the change in fund allocation, it will be interesting to see how the returns will be.
Multicap Mutual Fund Category One of the great mutual fund category is that it has always been the first choice of investors. You too can definitely invest in a good multi cap fund for a long period of time.