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Updated on :  

08 min read.

Think about making an investment, and chances are the term ‘Mutual Funds’ is what comes to your mind immediately. Off late, Mutual Funds have become a very common and important tool of investment. Presently, they appear to be the most preferred choice among investors; primarily because it provides better returns when compared to the traditional tools of investment. In this article, we cover the following topics:

Definition of Multi-Cap Funds

Before one invests, there is always a dilemma with regard to the category of Mutual Funds one should invest in. Should you choose large-cap, mid-cap, small-cap, multi-cap, or sectoral funds? One must know that each category comes with its own advantage and disadvantages.

While large-cap funds provide better stability to your portfolio, mid-cap, and small-cap funds provide exceptionally high returns. Sectoral funds can add to the gains if a particular sector is performing exceptionally well. Nevertheless, one fund category that stands out among the multitude due to its considerable flexibility is the multi-cap category.

In other words, multi-cap funds are diversified equity funds that invest in stocks of companies with different market capitalizations. The investments are done in varying proportions to meet the investment objective of the fund.  

Performance of Multi-Cap Funds

A quick look at the numbers shows that most multi-cap funds have done well in the past few years. In fact, many of them have even beaten the average market returns by a good margin. When measuring fund returns, the term ‘benchmark’ is used widely. In layman terms, a benchmark is a broad market index like the BSE Sensex or the CNX Nifty, which are used to compare Mutual Fund returns and performance. Below is a table that compares the performance of equity funds against the BSE Sensex:

Benchmark Comparison of equity funds vs S&P BSE Sensex Index

Equity Schemes

1 year 3 year 5 years

7 years


28.87% 7.84% 11.85%


Mid and Small-cap

47.16% 20.33% 20.00%


Multi-cap/ Diversified 28.87% 7.84% 11.85%


(Less than 1 year on absolute basis & more than 1 year on CAGR basis) One may find from the above table that the benchmarked returns of large-cap and multi-cap for past 5-7 years are almost the same. So, while both of these funds have been performing well, multi-cap funds have been more successful in providing better returns to investors wrt actual returns.

Multi-Cap Funds and Your Investment Portfolio

Funds in other categories like large-cap, mid-cap, small-cap, multi-cap, have restriction mandates and are constrained to stick to the companies that are defined by their portfolio. For example, a large-cap fund will not be able to invest in mid and small cap stocks even if the valuations in these market might seem lucrative.

Similarly, a mid-cap fund is forced to remain invested in mid and small cap stocks even when the market is not performing up to the mark. In such a scenario a multi-cap fund works out to be a better choice for the investor. Therefore, in the long run, multi-cap funds are usually better wealth creators than other categories of funds as they can take advantage of investment opportunities across the market.

Further, returns from the multi-cap category are comparable to mid-cap category over the long term which comes with lesser volatility.    

Investing in Multi-Cap Funds

Investors who are moderate risk-takers, and who do not have the inclination to research on a specific fund in the market, may consider investing in multi-cap schemes for long-term wealth creation. As already discussed above, these funds have the potential to offer superior returns than large-cap, but offer lesser returns when compared to mid and small-cap funds.

Therefore, if you have an exposure to multi-cap fund, you will have exposure to companies of different sizes and you will be reasonably diversified with simplicity.

Risk Factors Associated with Multi-Cap Funds

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. In a robust economic environment, the fund manager of a multi-cap fund can increase his exposure to mid and small-sized companies to benefit from earnings.

He can also choose to move investor money from shares of mid-cap companies to large-cap companies to take a shelter when he expects prolonged down periods. Hence you may find volatility in this segment of funds.

Choosing a Multi-Cap Equity Fund

Since a multi-cap fund invests across different market caps, the fund manager’s views are critical in determining the fund’s performance. It is advisable to check the fund manager’s past record and long-term performance of the fund before investing based on parameters like three-year and five-year average annualized returns, volatility and portfolio concentration.

It is also important to have a look at the portfolio this fund has invested during the tenure. As multi-cap funds are not confined to investing in any specific market, it is of utmost importance for an investor to have a look into the sectoral trends, as there might be some sectors that one would not prefer investing in, hence you might drill down to that level of detail and decide accordingly.

Top Performing Multi-Cap Funds

For the convenience of investors who are interested in this segment, here are few hand-picked funds which have provided exceptional returns during the last 7 years which you may consider investing in.

Scheme Name

1 year (%) 3 year (%) 5 year (%)

7 year (%)

Tata Equity PE Fund

40.17 18.47 22.86


DSP BlackRock Opportunities Fund

38.75 18.22 20.37


Aditya Birla Sun Life Advantage Fund

38.28 17.50 22.42


SBI Magnum Multicap Fund

36.50 17.11 21.00


Franklin India Opportunities Fund

36.20 13.64 18.65 13.46

When it comes to investing money, the foremost rule to follow is to not put all your eggs in one basket. An investor should diversify their investment, in Equity ( large-cap, Mid, and Small-Cap, Multi-Cap), Debt and other instruments including a portion invested in traditional investment tools. If you haven’t invested yet, you can start by investing in our hand-picked mutual funds  and have an experienced investment team work for you.  

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