Best Multicap Mutual Funds to Invest in 2020

A multicap mutual fund is an open-ended equity scheme investing across large-cap, mid-cap, and small-cap stocks. They offer flexibility to the fund manager to switch between stocks in order to achieve high returns providing better diversification.

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How does Scripbox rate funds?

Proprietary system to rate mutual funds

We use a proprietary system to rate mutual funds and based on that make a recommendation or rate the fund as top ranked.

We use a proprietary system to rate mutual funds and based on that make a recommendation or rate the fund as top ranked.

What Scripbox recommendations mean?

Scripbox algorithm recommends 2-4 funds for investment for an investment asset class such as large cap, diversified, liquid etc. When you invest for an objective, the algorithm suggests the appropriate asset class and funds.

Top Ranked

These funds are the top performers within a category of mutual funds considering a combination of criteria. The best amongst these funds are also labelled as Scripbox Recommended.

Scripbox algorithm classifies funds as "not recommended" when they perform poorly on a combination of criteria. These funds are usually the poorest performers within a category.

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Track Record

We look at consistent and long historical performance for our analysis

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Relative Size

We look at the size of the fund with respect to other funds in the category. Larger funds are preferred

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Category View

We check if the sub-category of the fund is recommended by us

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Consistency Of Performance

Consistency of performance over various tenures is analysed for a relative performance stack

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Track Record

We look at consistent and long historical performance for our analysis

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Relative Size

We look at the size of the fund with respect to other funds in the category. Larger funds are preferred

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Impact of Interest Rates

We check the relative interest rate risk of the sub-category of the fund. Lower the better

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Credit Quality Of Fund’s Portfolio

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What are Best Multicap Mutual Funds?

What are Multi cap Mutual Funds?

Multicap mutual funds are a type of equity mutual funds. The scheme’s minimum investment in equity and equity related instruments is 65% of the total assets. A multi cap mutual fund is an open ended equity scheme investing across large cap, mid cap and small cap stocks.

Best multi cap mutual funds invest across market capitalizations and sectors. They offer flexibility to the fund manager to switch between stocks in order to achieve high returns. Also, these top funds (multi caps) offer good diversification.

The large cap stocks offer stability and favourable returns during adverse market conditions. While, the right mid and small cap stocks offer significant returns in a bullish market. Therefore, top multi cap mutual funds managers have good opportunities to invest in stocks with growth potential.

With a mandate for other categories of mutual funds, every fund has a restriction with respect to the companies in which it can invest. In a scenario where the markets are not in favour to any category, multi cap mutual funds seem to be the best choice for investors.

When compared to large cap mutual fund, hybrid fund and index fund, multi funds can offer better returns. However, when compared to a pure mid cap fund or a small cap fund, returns from multicap funds are slightly on the lower side. Therefore, multicap mutual funds suit moderate risk-takers to achieve their financial goals.

In the long run, best multicap funds have a good potential for wealth creation. Compared to other categories top multicap mutual funds invest across different companies. Therefore, they have an advantage to tap the market wide investment opportunities.

Multicap funds can be classified into three types. However, there isn’t any specific names for these types of funds.

Multicap funds with focus on large cap stocks

These type of funds primarily focus on investing across large cap companies and then identify opportunities in mid and small cap companies.

Multicap funds with a focus on mid/small cap stocks

These funds invest across good opportunities in the mid and small cap sector. Also, these invest in large cap stocks to hedge the portfolio from any down side risk.

No specific focus on market capitalisation

These schemes invest across different market capitalisation. The main focus of these funds is to identify stocks that have a good potential to outperform and generate benchmark beating returns.

Therefore, investors can choose investing in top funds to realize their long term financial goals such as retirement, child education, and pay off loans etc.

 

Features of Best Multicap Mutual Funds

Investing in Multi caps provides investors with an opportunity to invest in a diversified portfolio. However, over diversification might lead to dilution of returns. Diversification might average out the risk, but it is also averaging out the returns. Hence investors who understand mutual fund basics and market dynamics can invest in top funds. However, investors who do not have knowledge of the same can take help of a professional to invest in mutual funds. Here are the features of best multicap mutual funds, to understand them better.

Dynamic asset allocation

Multi caps invest across market capitalization. The fund manager has the flexibility to invest in different market capitalization based on the situation. He can invest in large cap mutual funds when the volatility is high in the market and pick mid and small cap funds in the Bull Run. The fund manager's choice of asset allocation helps in maximizing return or reducing risk.

Returns

When compared to large cap mutual fund, hybrid fund and index fund, multi cap funds offer high returns. However, when compared to a pure mid cap fund or a small cap fund, returns from multicap funds can be slightly on the lower side. Returns of best multi cap mutual funds  depend largely on the fund manager. The way he/she sees the market and the decisions taken  affects the fund returns. The fund manager’s experience and expertise plays an important role in these funds. Right from the strategy he follows for research to picking stocks for the portfolio, every step is important. However, historical performance (annualized returns) is just an indication of the funds performance since inception. Investors shouldn't highly depend on historical performance. To calculate returns from mutual fund investment, one can use Scripbox online SIP calculator and lump sum return calculator.

Risk

Top multicap mutual funds have a diversified portfolio. Hence the risk in these funds is moderate. They are more risky than pure large cap funds but less risky than pure mid cap and small cap funds. In market lows, the fund plays safe. Standard deviation and sharpe ratio are used to measure risk in a fund. Standard deviation is the measure of volatility in a fund. Sharpe ratio measures the performance of an investment when compared to a risk free asset.

Investment Horizon

Best multi cap mutual funds are equity mutual funds. They have a mixed portfolio of large, mid and small cap stocks. An investor should ideally invest for a medium to long term investment horizon (5-7 years), to benefit from this investment.

Diversification

Top multi cap funds invest across market capitalization. They invest in large, mid and small cap stocks. This provides diversification to the portfolio spreading out risks across all the sectors.

 

Benefits of investing in Multi cap Funds

Diversification

The primary advantage of best multi cap mutual funds is diversification. It is the only type of equity fund that invests across market capitalization. Diversification in the portfolio helps average out the risk in it. For an investor, it is not only important to maximise returns but also minimize risk. Multicap mutual funds just do that. Due to a diversified portfolio the risk factor in it is managed by averaging it out.

Flexibility

Top multicap mutual funds have a very flexible portfolio. The fund manager invests across market capitalization. And he can shift from one market cap to another based on the market opportunities and situations. For example, in a bull run, the fund manager might increase the concentration of the portfolio on small and midcaps. Whereas in a bearish market, the fund manager might depend on large caps to minimize  losses.

Easy and time saving

For investors, seeking to diversify across market capitalization, but do not have the knowledge to do so, Multi cap funds are a one stop solution. The hard work of picking the stocks and keeping track of the investments is done by the fund manager. All one has to do is invest in multi cap fund, and voila, they have a diversified portfolio of stocks in their basket.

Risk

Multicap mutual funds are equity funds with moderate risk. Though they are equity funds, they have moderate risk because of their diversified portfolio. Instead of concentrating their portfolio to just large or mid or small cap, they have extended it all of them. This reduces the risk in the investment. Multicap mutual funds are less risky than pure mid cap or small cap funds. However, they are slightly riskier than large cap funds..

SIP and long term investing

Investing in Multi cap mutual fund through SIP for medium to long term (5-7 years) has quite a few benefits. SIP investing helps in averaging out the cost and brings down the cost of investing. Investing across a business cycle can help spread the risk. And investing for long term will help the SIP returns grow through power of compounding. All these benefits with just investing regularly with discipline. Scripbox's Online SIP calculator helps in calculating potential SIP returns from an investment.

 

How to invest in Top Performing Mutual Fund?

An investor can invest a lump sum one time or through SIP periodically. An investor can choose to invest lump sum one time if he has considerable corpus to invest for a longer-term. While SIP is a regular investment over a period of time. 

An investor can choose to invest monthly, quarterly, or half-yearly. SIP mutual funds are recommended for the first time mutual fund investors.

Investing through Scripbox is made easy and paperless. All you need to do is follow the below steps and start investing.

  • Choose a plan to invest to start investing
  • Set-up your investment account
  • Make instant payment or setup your investment for a later date
  • Money gets deducted from bank and gets transferred directly to mutual fund companies
  • Mutual fund companies allot you units and send confirmation via email & SMS. The same gets updated in your Scripbox Account
 

Taxability of Multicap Mutual Funds

Multicap funds are equity mutual funds, and hence follow the same taxation norms. Multi caps do not qualify for tax savings. To save tax, one can invest in Section 80C investment options like ELSS fund (Equity Linked Savings Scheme), fixed deposit, Public Provident Fund, etc.

There are two types of taxes Dividend Distribution Tax (DDT) and Capital Gains Tax for multi cap funds.

Dividend Distribution Tax

Dividends are now taxed in the hand of the investor. Any dividend earned is added to the taxable income of the investor. And, in accordance to the income tax slab rate the investor is taxed. Also, for dividends over INR 5,000 a 10% TDS is cut.

Capital Gains Tax

Capital Gains are taxed based on the investment holding period. For equity mutual funds with a holding period less than one year they attract Short Term Capital Gains Tax (STCG). And, for holdings beyond one year the gains attract Long Term Capital Gains Tax (LTCG).

Short Term Capital Gains Tax (STCG): Short term capital gains are taxed at 15% (plus 4% CESS).

Long Term Capital Gains Tax (LTCG): Long term capital gains above INR 1 Lakh are taxed at 10% (plus 4% CESS).

Additionally, a securities transaction tax of 0.001% is charged when investors sell their holdings.

 

About the Top Multicap Mutual Fund in India

Kotak Standard Multicap fund (G)

Kotak Standard Multicap Fund is a multi cap fund that aims to generate long term capital appreciation by focusing on few sectors. The fund endeavors to identify sectors that have been performing well in the medium term and invest in them.

Expense ratio: The fund charges 1.64% of the asset under management

Asset Under Management: INR 25,984 cr (As on May 31st 2020)

The minimum SIP investment amount is INR 500

Minimum Lump sum investment amount is INR 5,000

Motilal Oswal Multicap 35 Fund (G)

Motilal Oswal Multicap 35 Fund aims to to achieve long term capital appreciation by investing in a maximum of 35 companies across sectors and market capitalization. it follows a focused strategy to maximize returns.

Expense ratio: The fund charges 1.86% of the asset under management

Asset Under Management: INR 9,830 cr (As on May 31st 2020)

The minimum SIP investment amount is INR 500

Minimum Lump sum investment amount is INR 500

Parag Parikh Long Term Equity fund (G)

Parag Parikh Long Term Equity Fund aims to generate long term capital growth from an actively managed diversified portfolio. They invest in companies which are available at a fair price mainly because the company might be going through a painful phase.

Expense ratio: The fund charges 2.19% of the asset under management

Asset Under Management: INR 3,186 cr (As on May 31st 2020)

The minimum SIP investment amount is INR 1,000

Minimum Lump sum investment amount is INR 1,000

All the above top funds are available in direct and regular plan. Investors who have the time and knowledge to manage their investments can opt for direct mutual fund option. However, for investors who lack the same can invest through Scripbox in regular plan. To invest in a direct mutual fund plan, investors can transact directly with the fund house.

 

About the Top Multicap Mutual Fund in India

Multi cap funds do not qualify for tax savings. ELSS fund is the only type of mutual fund that qualify for tax savings under Section 80C of the Income Tax Act. However, there are other investments options like Senior Citizen Savings Scheme, ULIPs, Fixed Deposit, Public Provident Fund and Employee Provident Fund, etc.

Fixed deposit is considered one of the safest investment option under 80C. The FD rates vary from 3-4% (post tax) in India. However, debt funds are a better option than fixed deposit as the returns from them are greater than existing FD rates. But debt mutual funds do not qualify for tax savings.

All these are investment options that help one save tax. Hence instead of keeping the money idle in a saving account, investors can invest in any of the above options.

During tax filing, the investors can show the investments done in above options under section 80C of the Income Tax Act. Therefore, the total taxable income comes down during tax filing.

 

Conclusion

Though best multicap mutual funds to invest in 2020 offer diversification, but they aren’t immune to risks. They have quite a few drawbacks as well.

Multicap mutual funds are diversified funds. Over diversification might lead to dilution of returns. Though diversification averages out the risk, it also averages out the returns.

The costs tend to be high in Multicap funds as the fund manager uses flexible strategies for the portfolio. Their portfolio keeps changing according to market situations and thus increasing the costs.

Returns of the fund depend on the fund manager. The way the fund manager views the market might be different from others. He or she invests accordingly. Hence exposing the fund and its returns to fund manager bias.

Even with all these disadvantages, Multicap mutual funds have performed well in the market. These top performing funds have the capacity to give market-beating returns.

Investing will always be fruitful in the future. Even though it’s a risky affair, with the help of professionals, one can grow their wealth significantly through investing. Scripbox curates portfolios with the best mutual funds using their proprietary algorithm. To know more about mutual fund basics and how to invest in multi cap funds click here.

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