Multi Cap Mutual Funds: Investment Across Market Capitalization

Multi Cap Mutual Funds are equity funds that invest across market capitalization. Fund managers distribute your assets among Large-Cap, Mid-Cap, and Small-Cap companies. 

It’s safe to say that these funds are synonymous with portfolio diversification across the market cap. You don’t have to manually pick funds when Multi Cap can do the job for you.

Investors with low to moderate risk appetite can invest in these funds. But before that, let’s understand how these funds work.

How Multi Cap Mutual Funds Work?

Earlier, these funds used to invest at least 65% of total assets among equity and equity-related funds. Meaning, fund managers had the freedom to decide the allocation across market capitalization.

However, in Sept 2022, SEBI circulated a new rule for Multi Cap Mutual Funds:

Now, fund managers must invest at least 25% each in Large-cap, Mid-cap, and Small-cap companies, making the total 75%. 

Fund managers can increase the focus to a particular market cap with the remaining 25%.

How Are These Funds Different than Flexi-Cap Funds?

In Flexi-Cap Funds, fund managers are required to allocate at least 65% of total assets in equity. But there is no threshold of minimum investment in each category. 

Why Invest in Multi Cap Mutual Funds?

1. Exposure Across Market Capitalization

Investing in Multi cap funds unlocks exposure across Large-cap, Mid-cap, and small-cap funds. 

Each of these categories has a varying risk-reward structure. Multi-cap funds offer a balance by investing at least 25% in each category to encourage diversification. 

2. The Right Balance to Sustain Market Conditions

After investing 75% across market capitalization, the remaining 25% can be used to your benefit. 

Fund managers make a calculated decision depending on the market conditions. If the Small and Mid-cap funds are overvalued, the remaining 25% can go into Large-cap. Or vice-versa.

This method shifts the focus of the funds into either Large-cap or Small/Mid-cap. This brings us to the next point. 

3. Risk-Adjusted Returns

These funds deliver risk-adjusted returns because of the balanced allocation. Fund managers can tweak the allocation with the remaining 25% to balance the risk.

Multi-cap funds are certainly less risky than pure Small-cap or pure Mid-cap funds. And these funds will deliver superior returns than pure Large-cap funds. 

Things to Consider Before Investing in Multi-Cap Funds

1. Investment Horizon

Equity mutual funds deliver superior returns in the long run. You may want to consider staying invested for at least 5 years or more. 

Longer duration acts as a safety guard against market volatility. Invest only if you are comfortable with a longer investment horizon. 

You can also start SIP

2. Risk

Sure, these funds balance the risk-reward. However, it’s always better to be aware of the asset allocation. 

Investors with a low-risk appetite can go with Large-cap focused funds. Otherwise, multi-cap funds with small/mid-cap focus have the potential to make more profit. 

3. Fund House/Fund Manager

Returns on these funds depend on the fund manager’s strategy. They shift the allocations based on their analysis.

It is important to know the fund house/manager’s strategy, scheme policy, and rolling returns. You can find this information on the scheme’s factsheet. 

4. Expense Ratio

Multi-cap funds are actively managed by fund managers. Therefore, investors will have to pay a small annual fee in the form of an expense ratio. 

You can find the expense ratio structure in the fund’s factsheet. 

Note: The expense ratio is not a huge dent in your returns. A higher expense ratio is not a bad thing. Sometimes, fund houses may charge extra but the returns will also be higher compared to other schemes in the similar category. 

If you want to check, compare the expense ratio and the rolling returns of the funds in a similar category. That is, see the performance of the multi-cap funds of various fund houses.

Tax Implications on Multi Cap Mutual Funds

Taxation on these funds is similar to any other equity funds. It depends on the investment horizon. 

Investors have to pay:

  • 15% tax on Small-Term Capital Gains (Investment held for <12 months)
  • 10% tax on Long-Term Capital Gains above 1 Lakhs (Investment held for >12 months.)

Note: Long-term capital gains up to 1 Lakh are tax-free.

Who Should Invest in Multi Cap Mutual Funds

These funds are suitable for first-time investors as well as investors looking for a balanced portfolio.

Instead of going for a specific category, first-time investors can begin with Multi cap funds. These funds are great to introduce diversification in your portfolio.

Investors looking for long-term investments can welcome these funds into their portfolios. Instead of pure small-cap or pure mid-cap. Multi cap funds are less risky. 


Distributing your assets across market capitalization is a great way to balance risk-reward. Though it can be tedious to manually ensure diversification. 

That’s when Multi cap funds come into the picture. These funds can be a great start to get the best of all equity worlds. 

We’d recommend starting a SIP and benefiting from compounding. As these funds can stay for the long-term, you’d end up building a large corpus. 

Reach out to our advisors to know more about Equity Mutual Funds. We’ll help you introduce a proper balance to your portfolio.