Multi-Cap Funds: Definition, Features, and Benefits

Multi-cap funds can be defined as a type of equity mutual fund that invest in companies across all 3 market capitalisations. As per current SEBI rules, multi-cap funds need to invest at least 75% of their assets in equities and equity-oriented investments. Another key requirement is that a multi-cap fund needs to maintain at least 25% individual portfolio exposure towards large-cap, mid-cap and small-cap stocks respectively. Additionally, these equity investments are sector-agnostic i.e. fund managers can pick stocks of appropriate market cap from any industry or sector at their discretion.

As a result of this unique mandate these mutual funds can help diversify investments across large, small, and mid-cap companies without having to focus on a specific sector. So, By investing in multi-cap funds, you can introduce asset allocation into your investment portfolio without any of the hassles associated with choosing and tracking multiple mutual fund schemes.

As per current rules,Large-cap funds have to invest a major portion of their assets in the top 100 listed companies based on their market cap. Similarly, stocks ranked between 101st and 250th on the basis of market cap are the primary investment of mid-cap funds. While small-cap funds invest primarily in companies that rank 251th or lower.

Unlike these funds, multi-cap funds must invest in stocks belonging to all these market capitalisations in equal proportion of 25% each. The fund manager can however choose these investments irrespective of the sector or industry that the specific stock belongs to.

So, the equity portfolio of a multi-cap fund will look something like this:

Now that you know the basic definition of multi-cap equity funds, let's take a look at some other important information about multi-cap funds.

The following points highlight some key features of multi-cap funds that investors should be aware of:

The points below highlight the benefits of investing in multi-cap mutual funds:

Taxation of multi-cap funds can be divided into 2 categories – tax on capital gains and taxation of dividends. The tax on mutual funds belonging to this category is as follows:

Now that you know about the features, benefits, and limitations of multi-cap funds, here are a few important points you must keep in mind: