What are Multi-cap Funds

Multi-Cap Funds are a category of mutual funds. They pool money from investors and spread it across companies of all sizes - big, medium, and small. It's like having a diverse portfolio that covers the whole spectrum of the market.
What are Multi-cap Funds
4 mins

Multi-cap funds have emerged as versatile and strategic investment options. These funds provide investors with the flexibility to navigate across different market capitalisations, offering exposure to a diverse range of stocks. Understanding multi-ap funds is paramount for investors seeking a balanced and diversified portfolio. This article delves into the intricacies of multi-cap funds, exploring their features, benefits, and considerations to empower investors with the knowledge needed to make informed financial decisions.

What are multi-cap funds?

Multi-cap funds are a category of mutual fund that invest across various market capitalisations, including large-cap, mid-cap, and small-cap stocks. This diverse approach allows fund managers to adapt to changing market conditions, allocating assets strategically based on prevailing opportunities. By providing a well-rounded portfolio, multi-cap funds aim to balance risk and returns, making them suitable for investors with varying risk appetites and investment horizons. This flexibility enables investors to capitalise on market trends and benefit from a dynamic investment strategy that adapts to the evolving economic landscape.

How does a multi-cap mutual fund work?

By law, mutual funds must adhere to specific investment strategies. For instance, a large-cap fund is restricted to investing in the equities of the top 100 market capitalisation companies, while small-cap funds focus on those below the 250 mark, and so forth.

In contrast, the multi-cap category lacks a regulatory framework dictating the size and sector of companies it can invest in. Consequently, these funds allocate investments across large, mid, and small-cap equities, with the proportions subject to change at the discretion of fund management.

Fund managers evaluate market conditions and adjust the allocation of large-cap, mid-cap, and small-cap companies in a multi-cap mutual fund's portfolio accordingly. During periods of economic expansion, managers may increase exposure to mid-cap and small-cap stocks to harness their rapid growth potential. Conversely, during economic slowdowns, they might bolster exposure to large-cap stocks.

Features of a multi-cap fund




Multi-cap funds invest in equity and equity-related instruments across various market capitalisations. Fund managers actively seek opportunities to diversify investments to meet scheme objectives, making their role pivotal in the scheme's success.


Multi-cap funds inherently invest in stocks from large-cap, mid-cap, and small-cap companies, thus carrying more risk compared to large-cap schemes, which predominantly invest in established large companies.


Multi-cap funds typically maintain a long-term investment horizon. Investors with an objective of wealth creation over the long term and a moderate risk tolerance may find multi-cap mutual funds suitable for their investment goals.


Why should you invest in multi-cap funds?

Here are some key points explaining why you should consider investing in multi-cap funds:

  • Diversification: Multi-cap funds provide exposure to companies across different market capitalisations, offering diversification within a single fund.
  • Flexibility: These funds allow fund managers the flexibility to adjust allocations across large-cap, mid-cap, and small-cap stocks based on market conditions.
  • Growth potential: By investing in companies of varying sizes, multi-cap funds can capture growth opportunities across different segments of the market.
  • Risk management: The diversified nature of multi-cap funds can help mitigate risk compared to investing solely in one segment of the market, such as large-cap stocks.
  • Long-Term investment: With a long-term investment horizon, multi-cap funds are suitable for investors looking to create wealth over time while accepting moderate risk levels.
  • Active management: Fund managers actively manage multi-cap funds, aiming to identify undervalued stocks and capitalise on market trends to enhance returns.
  • Market participation: Investing in multi-cap funds allows investors to participate in the entire spectrum of the equity market, from large, established companies to smaller, emerging ones.

Types of multi-cap funds

Multi-cap funds can be classified into three types based on their investment strategy:

  1. Large-cap focused multi-cap funds: These funds allocate more than 25% of their assets to large-cap equities. They are useful for adding stability and balance to a portfolio, especially when markets are falling.
  2. Mid-cap focused multi-cap funds: With a more aggressive strategy and larger exposure to mid-cap and small-cap equities, these multi-cap funds aim to generate strong returns.
  3. No specific focus multi-cap funds: Apart from the mandated 25% investment in each capitalisation, these multi-cap funds do not target any specific categories. Fund managers concentrate on firms that have the potential to outperform and invest in shares across all sectors.

Taxation rules of multi-cap mutual funds

Investing in multi-cap mutual funds offers diversification benefits, but tax implications are important to consider. Here's a breakdown of the two main taxes you might encounter:

  • Capital Gains tax: This tax applies to the profits you earn when you redeem your multi cap fund units. The tax rate depends on how long you held the investment:
    • Short-Term Capital Gains (STCG): If you sell your units within one year of purchase, the gains are considered STCG and taxed at a flat rate of 15%.
    • Long-Term Capital Gains (LTCG): Investments held for more than a year qualify for LTCG benefits. Up to Rs. 1 lakh of LTCG earned in a financial year is exempt from tax. Any LTCG exceeding this limit is taxed at 10% without indexation (a factor that adjusts for inflation).
  • Dividend Distribution Tax (DDT): Multi-cap funds may pay out dividends from the underlying company profits. These dividends are subject to a Dividend Distribution Tax (DDT) of 10% deducted by the fund house before distributing them to you.

By understanding these taxes, you can make informed investment decisions and potentially minimise your tax burden. Remember, consulting a financial advisor can provide personalised tax advice based on your specific situation.

When to invest in multi-cap funds

Multi-cap mutual funds are ideal for investors who want to diversify their portfolio across different market capitalisations and sectors. It is ideal to have a long-term investment horizon of 5+ years if one wishes to invest in multi-cap funds.

Risks associated with multi-cap funds

Multi-cap funds are considered to have a moderate risk-return profile. When markets are rising, they can outperform large and mid-cap funds. They also collect good gains from small-cap equities during market surges. However, since these schemes also invest in mid-cap and small-cap stocks, they are riskier than large-cap schemes that invest mostly in large companies.

Factors to consider before investing in a multi-cap fund

Before investing in a multi-cap fund, consider the following factors:

  • Fund manager’s performance: The fund manager plays a crucial role in the performance of multi-cap mutual funds. Look for a fund manager with a proven track record of managing multi-cap funds.
  • Portfolio: Check if the fund is too concentrated in a few stocks or sectors. A well-diversified portfolio can help reduce risk.
  • Tax implications: Multi-cap mutual funds attract two types of taxes:
  • Capital gains tax: If you sell your units before one year from the date of purchase, short-term capital gains tax will apply at 15%. If you sell your units after one year from the date of purchase, long-term capital gains tax will apply at 10% (without indexation) . Cess and surcharge as applicable shall be levied on the tax amount.

Read more: What is portfolio diversification.


In conclusion, multi-cap mutual funds offer investors an opportunity to diversify their portfolio while taking the advantage of changing market conditions to get better returns on their money. However, before investing, it is important to consider the various risks and benefits associated with these funds, and thus make an informed choice.

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Frequently asked questions

Are multi-cap funds the same as Flexi-cap funds?

Multi-cap funds and Flexi-cap funds are similar but not identical; while both invest across market capitalizations, Flexi-cap funds have more flexibility in adjusting their portfolio allocations.

Should novice investors invest in multi-cap funds?

Novice investors may consider multi-cap funds as they provide diversification across different market segments, offering exposure to large-cap, mid-cap as well as small-cap stocks, allowing for a balanced investment approach.

Why not invest in one capitalisation rather than multi-cap funds?

Investing in one capitalisation may expose investors to higher risks, as concentration in a single market segment lacks diversification. Multi-cap funds mitigate this risk by spreading investments across various market caps.

Is it safe to Invest in a Multi-cap Fund?

Investing in a multi-cap fund can be relatively safe, provided investors carefully choose funds with a consistent track record, reputable fund managers, and align with their risk tolerance and financial goals.

What is the minimum amount to invest in Multi-cap Funds?

The minimum amount to invest in multi-cap funds varies across fund houses but is generally affordable, starting for as low as Rs. 100, making it accessible for a broad range of investors.

Can we redeem Multi-cap Funds anytime?

Yes, multi-cap funds offer the flexibility to redeem investments at any time, providing liquidity to investors who may need to access their funds based on changing financial needs.

Is there any tax on Multi-cap Funds?

Certainly, capital gains taxes are applicable to profits generated from Multi-cap Funds based on the investment horizon. For investments held for less than one-year, short-term capital gains taxes of 15% on the gain are levied. Conversely, investments exceeding one year attract long-term capital gains taxes at a rate of 10% on gains exceeding Rs. 1 lakh annually.

Is it the right time to invest in a mid-cap fund?

Mid-cap funds offer growth potential but carry higher volatility than large-cap funds. Market conditions and your investment horizon should be considered when deciding if a mid-cap fund is suitable for you currently.

Which multi-cap fund is best in 2024?

There's no single "best" multi-cap fund. The best choice depends on your risk tolerance, investment goals, and investment timeframe. Researching and comparing multiple funds is recommended.

Who should invest in a multi-cap fund?

Multi-cap funds are suitable for investors seeking diversification across large, mid, and small-cap companies. They are typically a good fit for investors with a long-term investment horizon who can tolerate some market fluctuations.

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