When it comes to securing financial growth, finding the right investment option is crucial. If you’re looking for a balanced approach to wealth creation, multi-cap funds are what you need. These funds provide a diversified portfolio by investing across companies of varying market capitalisations. Let’s dive into the features, benefits, and working of multi-cap funds to help you make an informed decision.
What are multi-cap funds?
Multi-cap funds are a type of mutual fund that invests in equity-related instruments across large-cap, mid-cap, and small-cap companies. Unlike single-cap funds, which focus on a specific market segment, multi-cap funds offer fund managers the flexibility to allocate assets as per market conditions. This broad scope makes them a versatile option for investors with varying risk tolerances.
For example, during an economic boom, fund managers might increase investments in small-cap stocks to maximise growth. Conversely, during downturns, they may prioritise the stability of large-cap stocks. This adaptability sets multi-cap funds apart from other investment options.
Why choose a multi-cap fund?
Multi-cap funds are an excellent choice for investors seeking a balanced approach to growth and risk management through diversified equity investments.
- Diversification across market caps
A multi-cap fund provides exposure to a mix of large-cap, mid-cap, and small-cap stocks, reducing the impact of underperformance in any single category.
- Flexibility in portfolio management
Fund managers actively assess market conditions to optimise portfolio allocation, ensuring better risk management and potential returns.
- Wealth creation over time
With a long-term horizon, multi-cap funds are ideal for those aiming to achieve significant financial growth while balancing risk.
Types of multi-cap funds
Multi-cap funds offer investors the flexibility to diversify their portfolio across various market capitalisations, catering to a wide range of investment strategies.
- Large-cap concentrated funds
These funds primarily invest in large-cap stocks, offering stability while allocating a smaller portion to mid-cap and small-cap segments.
- Small/mid-cap focused funds
These funds focus on the growth potential of smaller companies, with large-cap stocks included as a safeguard against market volatility.
- No specific concentrations
These schemes adopt a flexible strategy, searching for stocks with the potential to outperform, regardless of market capitalisation.
Each type caters to different investment objectives, making it essential to choose one that aligns with your financial goals.
How does a multi-cap mutual fund work?
Unlike single-cap funds restricted by regulatory definitions, multi-cap funds enjoy the freedom to invest across market capitalisations. Fund managers dynamically adjust the portfolio based on market trends, maximising returns while managing risks.
For instance:
- During favourable economic conditions, the fund manager might increase exposure to mid-cap and small-cap stocks.
- During slower economic phases, large-cap stocks, known for stability, may dominate the portfolio.
Such flexibility ensures that your investment adapts to changing market scenarios.
Taxation of multi-cap funds
When investing in a multi-cap fund, understanding taxation is crucial:
- Short-term capital gains (STCG): If you sell units within one year, gains are taxed.
- Long-term capital gains (LTCG): For holdings exceeding one year, gains up to a specified limit are tax-free. Gains above this limit are taxed without indexation benefits.
- Dividend tax: Dividends are subject to a 10% Dividend Distribution Tax (DDT), deducted at the source.
Being aware of these tax implications can help you plan your investments effectively.
Should you invest in multi-cap funds?
If you’re seeking a well-rounded option that combines growth potential with risk diversification, multi-cap funds are worth considering. These funds, managed by professionals, offer a strategic mix of stability and growth through diversified portfolios.
Before investing, it’s crucial to assess your financial goals, risk tolerance, and investment horizon. Whether you’re a seasoned investor or a first-timer exploring how to invest in mutual funds online, a multi-cap fund aligns with various objectives.
Investing is a journey that demands careful planning. With their adaptive approach, multi-cap funds are ideal for wealth creation. Start your investment journey with Ventura, one of the most trusted online trading platforms, to explore options and take a step towards financial security today!
