Benefits of investing in multi-cap mutual funds

Multi-cap mutual funds are equity funds that invest across companies of different market capitalizations i.e., large, mid and small caps. They provide exposure to stocks across market caps and sectors and offer several benefits to investors. Let’s examine the key benefits of investing in multi-cap mutual funds.

1. Diversification

One of the biggest benefits of multi-cap mutual funds is diversification. Since these funds invest across market capitalizations and sectors, they provide a diversified equity portfolio to investors. This diversification helps reduce overall portfolio risk.

Multicap funds invest in companies across market capitalisations. Large caps generally provide stability while mid and small caps provide higher growth potential. Multi-cap funds has to allocate 25% in each marketcap. Investing across market caps provides a balance of stability and growth.  Furthermore, different sectors in the economy perform differently at any point in time. While one sector may be booming, another could be struggling. Multicap funds help spread investments across sectors, ensuring exposure to growth sectors while limiting risks from struggling sectors.

2. Flexibility

Another key advantage of multicap mutual funds is the flexibility they provide to fund managers in managing their portfolio. Unlike other equity funds that need to stick to a market cap allocation, multi-cap fund managers can dynamically shift the portfolio composition based on prevailing market conditions. For instance, when mid and small cap segments are overvalued, fund managers can reduce exposure to these and increase allocation to large caps. Similarly, if large caps appear overvalued, allocation to mid and small caps can be increased. Multi-cap funds provide flexibility to fund managers to overweight or underweight companies or sectors based on potential opportunities and risks. This enables them to maneuver the portfolio to capitalize on opportunities across market environments.

3. Exposure to high growth opportunities

Investing in a multicap mutual fund provides exposure to growth opportunities across the market cap spectrum. While large caps provide stability, mid and small caps tend to provide higher growth potential. Mid and small cap companies are typically young, in growth phase and can deliver exponential returns over the long term as they evolve into large caps or get acquired. Having the leeway to invest meaningfully in mid and small caps allows multi-cap funds to tap into this higher growth potential. At the same time, large caps provide stability and lower volatility. Blending large caps along with mid and small caps provides stability to counteract the higher volatility that comes with mid and small caps.

4. Smoothens portfolio journey

Investing in a pure large cap or pure mid/small cap fund means you are exposed to the dynamics of that market cap segment. Large caps generally see steady growth while mid/small caps go through higher volatility.

In a multicap fund, presence of both large caps and mid/small caps has a smoothening effect on the portfolio. When mid/small caps underperform or correct, large caps provide stability and balance it out. And when large caps languish, the mid/small cap exposure fuels further growth.

5. Suitable for majority of investors

Multi-cap mutual funds, with their exposure across market caps and sectors, can suit the needs of most investors. They are the ideal mutual fund investment for first time equity investors given the balanced approach. Even for moderately aggressive investors,multi-cap fundsoffer an optimal risk-return profile. The flexibility also allows customization of the portfolio as per risk appetite by having higher or lower mid/small cap exposure.

6. Aid portfolio construction

Beyond being independent investment options,multi-cap fundscan also play an effective role within an investor’s overall portfolio. Their presence helps construct a robust and balanced portfolio. Multi-cap funds can provide the core equity exposure in your portfolio given their diversified profile. Sector funds, thematic funds, etc., can then provide satellite exposure to enhance returns.


Multi-cap mutual funds invest across largecap, midcap and smallcap companies providing diversification across market capitalizations and sectors. This flexibility allows fund managers to capitalize on opportunities across market segments. Multi-cap fundsprovide exposure to the stability of large-cap stocks and the growth potential of mid and small caps. Their diversified nature leads to lower volatility and a smoother investment journey compared to pure mid or small cap funds.

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