What is a multi – capital fund?

What is a multi – cap fund?

These mutual funds work on the principle of investing across categories or types of stocks: large-cap, mid-cap, and small-cap. Such a structure ensures investment diversified across growth, stability, and risk. All these are regulated by the Securities and Exchange Board of India, where at least a minimum percentage in every category is maintained so that it truly reflects diversification across all market caps.

For investors, multi-cap funds are an easy entry point to various types of companies within one investment, giving them access to stability from large-cap stocks while also reaping growth potential in mid- and small-cap stocks. Here's a closer look at how multi-cap funds work, benefits, and who they're best suited for.

How Do Multi-cap Funds Work?

Actively managed by fund managers of multi-cap funds, select stocks from large-cap companies, mid-cap companies, and small-cap companies, and each category has individual characteristics:

1. Large-Cap Stocks: These are the stock of well-established stable company. Large caps provide a lot of reliability and will work as a safety net while trading in the market as such company is less volatile.

2. Mid-Cap Stocks: These mid-cap stocks are sourced from medium companies. Mid-cap stocks are relatively more volatile than the large-cap stocks but more potential in terms of growth, so this category presents a well-balanced stability and opportunity.

3. Small-Cap Stocks: These are small-cap stocks from comparatively smaller companies with significant growth potential and risk as well. Though returns can be pretty good on small-cap stocks, they can also be relatively volatile.

The manager invests in all these categories in the multi-cap fund, aligning with the market trends and economic factors besides the strategy of the fund. As per the rules of SEBI, however, at least 25% of the total assets in the multi-cap fund should be invested in each of the three categories, large-cap,