What are multi-cap mutual funds

What are multi-cap mutual funds?

Investing in mutual funds is a tough call. It may leave you riddled with a series of challenging questions. Is it wise to invest in large-cap mutual funds for more stability? Or should you choose low-cap or mid-cap schemes for aggressive growth? If you are very new to the world of mutual funds, you might also be baffled by questions like: what are multi-cap mutual funds? What are the types of multi-cap mutual funds? And what are the benefits of multi-cap mutual funds?


While experts recommend considering your risk tolerance before investing in mutual funds, defining your risk capacity as low, medium, or high is harder. Therefore, small-cap, mid-cap, or large-cap mutual funds might not always sync with your risk preference. That is where multi-cap mutual funds come into play. Here, we will explore all you need to know and much more about multi-cap funds.

What are multi-cap mutual funds?

Multi-cap mutual funds are investment vehicles that pool money from multiple investors and invest it across companies with different market capitalizations. Market capitalization implies the value of the company’s outstanding shares. Firms are typically categorized into three segments based on their market capitalizations. These include small-cap, mid-cap, and large-cap companies.

To put simply, multi-cap mutual funds refer to the funds that invest in equity-related stocks of companies with varying market capitalizations. When you invest in multi-cap mutual funds, you invest your money in large-cap, mid-cap, and small-cap companies. Since every scheme invests in different proportions, multi-cap funds are a viable option to match your risk tolerance.

Fund managers of a large-cap fund cannot invest in stocks of a small-cap company, however lucrative the opportunities might be. Multi-cap mutual funds allow the fund manager to leverage investment opportunities across the spectrum of the market. They are also a better option for wealth creation in the long run. All in all, these schemes are an ideal choice for every investor, irrespective of their risk capacities and financial goals.

Types of Multi-Cap Funds

Multi-cap schemes provide exposure to a diversified portfolio of stocks across small, mid, and large-cap market segments. The flexibility to leverage growth opportunities across the capitalization spectrum makes these schemes your go-to choice when investing in mutual funds. They can be classified into the following categories based on their larger focus on a specific segment.

Multi-cap funds focusing on large-cap stocks

These funds have their primary focus on large-cap stocks. They allocate more than 25% to the large-cap segment. These multi-cap funds provide stability and balance to the portfolio during the market downfall. They protect the portfolio through large-cap stocks while allowing fund managers to explore growth opportunities in mid-cap and small-cap stocks.

Multi-cap funds focusing on mid/small-cap stocks

These funds aggressively focus on mid-cap and small-cap stocks to get the investors high returns. The large-cap stocks are meant to compensate for the downside.

Multi-cap funds with no specific focus

These funds keep a fair share of the assets in each capitalization and do not target any specific segment. They seek investment and growth opportunities across the market spectrum, focusing more on stocks that may outperform.

Benefits of multi-cap mutual funds

Multi-cap mutual funds have a moderate risk-return profile. When the market leaps upward, they can outperform large-cap and mid-cap funds. They can also get considerable returns from small-cap stocks during market rallies. Some of the benefits of multi-cap mutual funds are as follows:

Exposure to all segments of the market capitalization

These funds do not limit fund managers to a particular market cap. They provide exposure to all companies and sectors, which results in maximum returns and minimal risk.

A diversified portfolio

Since these funds provide the flexibility to invest across companies varying in sizes and sectors, you can take advantage of every growth opportunity that comes your way. There could be no better way to diversify your portfolio than multi-cap mutual funds. This diversification spreads out the risk and increases the growth potential.

Access to quick cash

Multi-cap mutual funds are a great way to access quick cash even if you do not want to sell them. Many banks/NBFCs offer loans on multi-cap mutual funds. While the interest rate on loans against multi-cap mutual funds is low, disbursal is possible within hours. So, with investments in these funds, you can meet your short-term financial needs without jeopardising your investment goals.

Wrap up

To conclude, multi-cap mutual funds provide a balanced approach to investing in the stock market. They offer portfolio diversification and stability along with growth opportunities to investors. You may consult a financial adviser to know how to invest in multi-cap mutual funds.