Multi-cap funds have emerged as a popular choice for investors seeking diversification across market capitalisation. In a recent discussion with Outlook Money, Shrinivas Khanolkar Head of Marketing – Communications and Strategy, Mirae Asset Investment Managers (India) Pvt Ltd and Gajendra Kothari, Managing Director and Chief Executive Officer of Etica Wealth Private Limited, spoke about the strategies one should adopt while investing in multi-cap funds.

He was in discussion with Sutirtha Sanyal, senior assistant editor, Outlook Money.

Here are some excerpts from the discussion.

How would you define multi cap funds?

The multi-cap segment includes a combination of large-, mid- and small-cap companies and they have to invest a minimum of 25 per cent in each of these segments.

How are they positioned?

They have a mix of growth and value-oriented stocks. If anybody wants to have a play across all market cap companies, then then this is a good category to consider.

Which kind of investors should invest in multi cap funds?

They offer the best way to invest in a diversified set of equity funds. So, somebody who might want to play a bit moderate would find this category suitable. You should expect some volatility because of the mandatory 25 per cent investment each in mid cap and small cap.

What should be the ideal investment horizon?

Someone who is looking for investing for less than two or three years should avoid these category of funds, because small caps are involved.

What risk factors should be considered while selecting the multi cap funds?

In the last 13 years, no single category has been a clear winner. Large-cap and mid-cap have topped four times each and small-caps have topped five times.

Is this category good for SIP investing?

These are as good as diversified equity fund, so it is a good category to choose from if somebody wants to invest on a monthly basis.

What about the taxation aspect?

Multi-cap funds come under the equity category. Any capital gains arising out of the long-term Investments, i.e., more than 12 months are tax-free up to Rs. 1 lakh in a financial year. Beyond that limit, there is a tax of 10 per cent. If the investment is held for less than 12 months, they will be taxed at 15 per cent. If investors opt for the income distribution cum capital withdrawal plan, and the fund declares a dividend, then dividends are taxable in the hands of the investors.

Disclaimer

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.