It is a common consensus among wealth managers that investors with a long-term horizon, especially those using SIPs for wealth creation, should invest in Multi-cap Funds.

1. What are multi-cap funds?

Equity diversified funds that are permitted to invest in stocks across market capitalisation are Multi-cap funds. Thus, it is safe to say that the portfolio comprises a mix of large-cap, mid-cap and small-cap stocks. The mutual fund regulation mandates that these funds invest a minimum of 65% in equity and equity-related instruments. Multi-cap funds invest in stocks of different market capitalisation and sectors.




2. What are the inherent advantage of multi-cap fund?

Investors find it difficult to understand valuations of large, mid and small-cap funds as they do not know which category will do well in the future. A Multi-cap fund gives a fund manager the flexibility to switch holdings in the fund among stocks of different market capitalisations. Thus, when valuations in the small or mid-cap space turn expensive he can move to large-cap stocks and vice versa. The fund manager can invest in a mix of large, mid and small-cap stocks without any market cap bias. In comparison, pure large-cap funds need to invest minimum 80% of the portfolio in the top 100 stocks in terms of full market capitalisation. Similarly, mid-cap funds need to invest 65% of the portfolio in 101st to 250th stocks in terms of full market capitalisation.




3. Whom are they meant for?

Investors who do not understand the nuances of individual stock picking or deciding which market capitalisation fund to invest in could opt for this category of funds. Wealth managers recommend investors who stagger their investments using the systematic investment route (SIP), especially those investors with a horizon of 10 years and above to invest in these funds.

4. How long should one stay invested?

Stock markets go through market cycles of ups and downs, volatility etc. Investors should invest with a time frame of at-least 5 years.



Mutual Fund investments are subject to market risks, read all scheme related documents carefully.