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Invest in Top Multi Cap Mutual Funds In 2021: High Return Mutual Funds In India

Looking to Invest in Top Multi Cap Mutual Funds? Here is a list of Top Multi Cap Mutual Funds. Learn about various factors such as returns, risks and taxation associated with Multi Cap Mutual Funds.
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What are multi cap funds?

A multicap fund is an open-ended mutual fund scheme that invests a minimum of 75% of its total assets in equity and equity-related instruments. The minimum 75% investment in equities is done in the following manner:

  1. 25% of total assets in equity and equity-related instruments of large-cap companies
  2. 25% of total assets in equity and equity-related instruments of mid-cap companies
  3. 25% of total assets in equity and equity-related instruments of small-cap companies

Best multi cap funds to invest in

Let us look at the returns given by multi-cap funds.

Scheme nameAUM (Rs. crores)1-year3-years5-years
Sundaram Multi Cap Fund1,76226.99%21.62%16.60%
Baroda Multi Cap Fund1,15427.68%23.11%15.39%
BNP Paribas Multi Cap Fund58825.69%21.92%15.36%
Invesco India Multicap Fund1,80420.48%21.42%15.23%
Nippon India Multicap Fund11,26829.55%17.09%14.15%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/multi-cap-fund.html)

Note: The returns are as of 14th Feb 2022. The returns are for direct plans with growth option. The one-year returns are absolute. The three and five-year returns are CAGR. The funds have been ranked based on five-year performance.

Who should invest in multi cap mutual funds?

An investor looking to diversify into large, mid, and small companies with a single mutual fund scheme can consider investing in a multi-cap mutual fund scheme. Since a multi-cap mutual fund has a minimum of 75% of its total assets invested in equities, it has high risk. Hence, investors with an aggressive risk profile should consider investing in a multi-cap mutual fund scheme.

Taxation of multi-cap mutual funds

For taxation purposes, multi-cap mutual fund schemes are treated as equity schemes and taxed accordingly.

  1. Short-term capital gains (STCG) tax: If you sell your multi-cap scheme units within twelve months of purchase, the capital gain will be classified as short-term capital gain (STCG). The short-term capital gain (STCG) tax will be levied at 15%.
  2. Long-term capital gains (LTCG) tax: If you sell your multi-cap scheme units after twelve months of purchase, the capital gain will be classified as long-term capital gain (LTCG). Every financial year, the first Rs. 1 lakh long-term capital gain will be exempt from taxation. The incremental long-term capital gain above Rs. 1 lakh will be taxed at 10%.

Risks involved in multi-cap mutual fund schemes

Multi-cap funds are categorised as high-risk investment products. In the past, during certain events like the 2008 Subprime crisis and the 2020 Covid-19 pandemic, equity markets had gone down by as much as 50%. During those times, investors in multi-cap funds faced huge notional losses. However, over a period of time, equity markets recouped their losses and went on to make new highs. As a result, multi-cap funds also reversed their losses and gave handsome returns to their investors.

Return potential of multi-cap funds

Multi-cap funds invest a minimum of 75% of their total assets in equities at all times. In the long run, equities have the potential to give inflation-beating high returns. Hence, multi-cap funds also have the potential to give inflation-beating high returns. Multi-cap funds can create wealth for you in the long run and help you achieve all your financial goals.

Compounding effect of mutual funds with respect to time

In the long run, multi-cap mutual funds benefit from the magic of compounding. The longer the investment time horizon, the better the chances of high returns. Multi-cap funds invest 25% each in mid and small-cap companies, along with large cap companies. In the long run, mid and small-cap companies have the potential to grow at a faster rate and compound your wealth. 

Over a period of time, small caps have the potential to become mid-caps, and mid-caps have the potential to become large caps. Thus, if you invest in the best multicap mutual funds, compounding can help you create wealth for fulfilling your financial goals.

Advantages of multi-cap mutual funds

The biggest advantage of a multi-cap mutual fund is that it gives you a diversified equity portfolio with a single scheme. Thus, you get a minimum exposure of 25% to each: large, mid, and small-cap companies with a single investment product. If you invest in the best multi mutual fund, it has the potential to give you inflation-beating high returns and thus create wealth for you. 

Multi-cap mutual funds are classified as equity schemes and taxed accordingly. Equity mutual funds have a favourable tax treatment compared to debt mutual funds. Thus, a multi-cap fund gives you the advantage of wealth creation along with favourable tax treatment.

Reasons to invest in multi-cap mutual fund schemes

Some of the reasons for investing in multi-cap mutual funds schemes include:

  1. Minimum 75% exposure to an equity asset class that has the potential to create long term wealth
  2. A diversified equity exposure to large, mid, and small companies (25% exposure to each of them) in a single mutual fund scheme. As per asset allocation strategy, within equities, an investor should have exposure to large, mid, and small-cap stocks.
  3. Large, mid, and small-cap indices take turns to outperform each other in various years. Nobody knows which index will outperform next year. Hence, it is advisable to have exposure to a multi-cap fund. It will ensure that irrespective of whichever index outperforms, your investment portfolio will benefit as it has exposure to stocks in that index.
  4. Favourable tax treatment of an equity mutual fund scheme

However, please note that multi-cap mutual fund schemes carry high risk due to their high exposure to equities that can be very volatile in the short run. Hence, you should consider investing in multi-cap mutual fund schemes only if you have an aggressive risk profile.
To start investing in multi-cap mutual fund schemes as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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