Introduction of Multi-cap Fund
Multi-cap Mutual Funds can invest in stocks of various companies irrespective of the market capitalization, which means the fund can invest in Large-cap, Mid-cap, and Small-cap stocks, subject to regulatory limits. Multi-cap Funds possess moderate to high risk and are suitable for investors looking to invest across market capitalizations. Here you are going to read about a Multi-cap Fund, its benefits, types, and all other aspects you need to know about this type of fund.
What is a Multi-cap Mutual Fund
A Multi-cap Fund meaning: it is a fund that invests in Large-cap, Mid-cap, and Small-cap stocks. As per SEBI guidelines, any Multi-cap Fund needs to invest at least 75% of its assets into equity and equity and equity-related investments. Moreover, SEBI has now specified that Multi-cap Funds need to invest at least 25% of their assets in each of the three market capitalization categories. So, any Multi-cap Fund has to have 25% of its assets invested in Large-cap, 25% in Mid-cap, and another 25% in Small-cap. The remaining 25% can be invested as per the type of the fund and the preference of the fund manager.
One of the primary reasons for investing in Multi-cap Funds can be diversification. As you can understand, this fund invests in companies of different sizes which can help in generating superior returns over the long term.
How do Multi-cap Funds Work
As per SEBI’s guidelines, mutual funds need to be very specific regarding their investment approach. Furthermore, as per SEBI guidelines, Large-cap, Mid-cap, and Small-cap Funds cannot substantially invest beyond their mandate in different market capitalizations A Multi-cap Fund is a fund that can invest in all these three types of companies according to the market scenario.
Advantages of Multi-cap Funds
The benefits of investing in Multi-cap Funds are
- Diversification: Your portfolio gets diversified without much effort. Multi-cap Funds invest in Large- cap, Mid-cap, and Small-cap stocks, due to which investors get exposure to companies of different sizes of companies.
- No need to re-balance as per economic cycle: Since the fund remains invested in Large-cap, Mid-cap and Small-cap companies across all market cycles, investors need not worry about re-balancing as per market cycles. Over the long-term, the remaining invested in different types of companies can help generate superior returns.
- Managing risk: Investing in only Small-cap and Mid-cap stocks can be riskier. However, in Multi-cap Funds, the fund manager also allocates funds towards Large-cap stocks, which helps in managing the risk of the portfolio better.
Who Should Invest in Multi-cap Funds
Multi-cap Funds are best for those investors who are confused or in a dilemma about choosing funds according to the market capitalization. If you are seeking to invest in companies across market capitalization, then you can invest in Multi-cap Funds.
Another set of investors who can include Multi-cap Funds in their portfolios is those who have long-term investment horizons. If you can stay invested for more than 5 years, then you can choose Multi-cap Funds and reap the benefits of compounding.
What is the Minimum Amount you Need to Invest in Multi-cap Funds
You can invest in Multi-cap Funds like any other fund. You can use SIP to invest in it or you can also choose to invest a lump sum amount. If you are choosing SIP investment to invest in a Multi-cap fund, you can start investing with just Rs. 100 as well. However, the minimum amount of investment depends on the fund you are choosing.
Things to Consider Before Investing in Multi-cap Funds
When you are going to invest in a Multi-cap Fund or choose one, you need to check:
- You need to consider the risk taken by the fund manager and match the same with your risk appetite. Within each category, the approach of each fund manager could be different. For example, within Mid-cap stocks, a fund manager could select safe stocks versus riskier stocks (like commodities). This will be reflected in risk measures of the fund.
- Another important factor to look into is your own investment goals. You need to understand and decide what you want from the investment you are going to make. How long you can stay invested, how much you can invest, and what return do you want? All these questions you need to ask and get an answer from yourself before investing. A Multi-cap fund is suitable for those who are looking at investing for more than 5 years.
Tax Implications on Multi-cap Funds
If you redeem your investment in a Multi-cap Fund before completing 12 months from the date of purchase, then your profits will be categorized as short-term capital gains and will be taxed at a flat rate of 15%.
On the other hand, if you’re taking profits after one year from the date of purchase, your profits will fall under long-term capital gains. In a financial year, if your long-term capital gains do not exceed Rs. 1 Lakh, then you’re eligible to get a tax exemption, and if it exceeds that, then the excess amount will be taxed at 10% without indexation.
Suppose you made a long-term capital gain of Rs. 1.50 Lakhs from an Equity Mutual Fund in a financial year. Here, Rs. 1 Lakh will be exempted from income tax and the remaining Rs. 50,000 will be taxed at 10%.
How to Invest in Multi-cap Funds Through Nivesh
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
Frequently Asked Questions (FAQs)
1. Is it Safe to Invest in a Multi-cap Fund?
Yes, Multi-cap Funds are safe for investment as they are highly regulated. Moreover, the fund managers who handle these funds are highly experienced and knowledgeable. However, the investor should be ready for intermediate volatility in the amount invested due to volatility in market conditions.
2. What is the Minimum Amount to Invest in Multi-cap Funds?
You can start with just Rs. 100 or so using the monthly SIP option. This depends on the scheme you are choosing for investment. While there are schemes with a minimum investment of Rs. 100, there are even schemes with a minimum investment of Rs. 5,000 as well.
3. Can we Redeem Multi-cap Funds Anytime?
Yes, there is no lock-in period in most of the Multi-cap Funds and all the funds are open-ended funds. You can withdraw from the fund anytime you want, subject to applicable exit load. However, when you are investing in Multi-cap Funds, you should try to remain invested for a longer period to reap the benefits of compounding. The more time you remain invested for, the higher would be the returns.
4. Is There any Tax on Multi-cap Funds?
Yes, you have to pay capital gain taxes on the profits from Multi-cap Funds as per the investment horizon. If you invest in Multi-cap Funds for less than the tenure of 1 year, then you have to pay the short-term capital gain taxes, which is 15% of the gain. While investment with a tenure above 1 year attracts long-term capital gain taxes, which is 10% of the gain over an amount of Rs. 1 Lakh per annum.
