Understanding Multicap Mutual Funds: Investment Vehicles that span across various market capitalizations.
Investing in multi cap funds through platforms like Best Multi-cap Funds or directly visiting their websites is a straightforward process. To start, simply find the desired fund, click on 'Invest Now', enter the amount and mode of investment, and provide basic details such as your Pan and bank details.
Multi cap funds offer a unique investment strategy by allocating funds across large cap, mid cap, and small cap stocks. Regulatory guidelines require at least 25% allocation to each category, ensuring a diversified spread. This means that these funds invest between 25% to 50% in each of large, mid, and small cap segments, striking a balance between growth potential and risk.
For instance, the Kotak Multicap Fund and the HDFC Multi Cap Fund have approximate allocations of 50% and 44% to large cap stocks, respectively, with the remaining portions divided between mid and small cap stocks.
Understanding the Stocks
- Large Cap Stocks: These represent financially robust companies generally ranked in the top 100 by market capitalization. They offer relative stability and lower volatility but usually lower growth potential.
- Mid Cap Stocks: These invest in companies ranked approximately 101-250 in market cap. They bring higher growth potential with moderate volatility, serving as a growth driver in the portfolio.
- Small Cap Stocks: These comprise companies ranked beyond 250 and carry the highest volatility and risk but also the highest growth potential.
Multi cap funds capitalize on this mix by dynamically managing allocations to seek a balance of stability (large caps) and growth (mid and small caps), typically ensuring at least 25% in each category to maintain diversification and comply with SEBI regulations.
Key Features of Multi Cap Funds
- Flexible Investment: There is no lock-in period in multi cap funds, allowing investors to enter and exit anytime they want.
- Top Performers: The top-performing multi cap mutual funds include the Nippon India Multi Cap Fund Direct-Growth, Mahindra Manulife Multi Cap Fund Direct - Growth, ICICI Prudential Multicap Fund Direct Plan-Growth, Baroda BNP Paribas Multi Cap Fund Direct-Growth, and Invesco India Multicap Fund Direct-Growth.
- Expense Ratio: The expense ratio is a fee charged by the asset management company for managing a multi cap fund, covering administrative and operating expenses like the fund manager's salary.
- Balanced Risk and Growth: Investing in multi cap funds offers the opportunity to earn better returns by investing in small cap companies with high growth potential, while keeping the risk balanced by investment in large cap companies.
- Affordable Investment: The minimum amount required to invest in multi cap funds is as low as Rs. 500 through an SIP.
- Dynamic Allocations: The proportion of investment allocation in Large Cap, Mid Cap, and Small Cap Stock in multi cap funds is determined by the fund managers and may change based on the economic and market scenario.
- Tax Implications: Multi cap funds are taxed based on the length of investment. Short-Term Capital Gain (STCG) tax is 15% for investments sold within 1 year, while Long-Term Capital Gain (LTCG) tax is 10% for investments held for more than 1 year, with gains up to 1 lakh being tax-free in a financial year.
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