ET In The Classroom: Multicap Funds

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, ET BureauLast Updated: Jan 22, 2025, 06:02:00 AM IST

Synopsis

​Lay investors often do not know when or how much to invest in large, mid-, or small-cap funds. If they invest only in large-cap schemes and small and mid-cap stocks rally, as often happens in the market, they will miss out on the gains.

Financial planners recommend multi-cap funds with a fixed allocation to large, mid-, and smallcap stocks for long-term investors looking to create wealth and meet long-term goals. This category currently has 29 schemes managing assets of Rs 1.82 lakh crore.

WHAT ARE MULTICAP FUNDS?

Multicap schemes, according to the norms set by market regulator Sebi, invest 25% each in large, mid and smallcap stocks, and the remaining at the fund manager’s discretion. Fund managers can choose stocks from any industry or sector meeting the market capitalisation requirements. Large-cap companies are ranked 1-100 by market capitalisation, midcaps between 101 and 250, and companies ranked beyond 250 are small-caps.

WHERE DO THESE FUNDS SCORE OVER OTHERS?
Lay investors often do not know when or how much to invest in large, mid-, or small-cap funds. If they invest only in large-cap schemes and small and mid-cap stocks rally, as often happens in the market, they will miss out on the gains. Hence, financial planners believe that in the long run, investors with a time horizon of upwards of 10 years could consider multi-cap funds, which identify investment opportunities across the entire market spectrum.

FOR WHOM DO THESE SCHEMES SUIT BEST?

Long-term investors who do not have a framework or do not want to go through the troubles of individual stock selection but want to allocate to the mid-cap and small-cap spaces for the long term can opt for multi-cap funds. Financial planners also recommend this category to investors looking for a single fund in their portfolio that gives exposure across market capitalisations. Investors can accumulate a large corpus over the long term through these schemes. These funds could also suit first-time investors and others who invest in equities through systematic investment plans (SIPs). Conservative investors uncomfortable with market volatility may avoid multicap funds and stick to large-cap-oriented funds.