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Multi-cap and focused equity funds are two common types of equity mutual funds, each with different strategies and risk profiles. Multi-cap and focused equity funds differ primarily in their investment strategy and diversification. Multi-cap funds invest across all market capitalizations (large, mid, and small-cap) offering broad diversification and potentially lower risk. Focused equity funds, on the other hand, invest in a limited number of stocks, often with a specific theme or conviction, leading to higher risk but also potentially higher returns. While both aim for capital growth, understanding their differences helps investors choose funds that align with their goals and risk tolerance.
Multi-cap funds are equity mutual funds that invest across large-cap, mid-cap, and small-cap stocks, offering diversified exposure to companies of varying market capitalisations.
Mandatory allocation: According to SEBI’s guidelines, multi-cap funds must invest a minimum of 25% each in large-cap, mid-cap, and small-cap stocks.
Balanced risk: The portfolio is spread among different company sizes, reducing overexposure to one segment.
Suitable for long-term investors looking for a mix of growth and stability.
Focused equity funds invest in a limited number of high-conviction stocks, typically up to 30, as per SEBI regulations. These funds are designed to concentrate capital in select opportunities believed to have strong growth potential.
Up to 30 stocks in the portfolio
Can invest across all market capitalisations (large, mid, small)
High potential returns but with higher risk due to lower diversification
Suitable for investors with higher risk tolerance
The following table highlights how multi-cap and focused equity funds differ across key parameters:
Feature |
Multi-Cap Funds |
Focused Equity Funds |
|---|---|---|
Diversification |
High (across all cap sizes) |
Low (up to 30 stocks) |
Risk Level |
Moderate |
High |
SEBI Allocation Norm |
Minimum 25% each in large, mid, and small caps |
No such restriction |
Investment Flexibility |
Balanced across sectors and cap sizes |
Concentrated bets, sectoral or thematic tilt possible |
Target Investor |
Moderate risk-takers, long-term goals |
High-risk takers seeking alpha returns |
Multi-cap funds offer several benefits that make them appealing to a wide range of investors, including:
They spread investments across various capitalisations, reducing volatility and company-specific risk.
By combining large-cap stability with small/mid-cap growth, multi-cap funds offer a better risk-reward balance.
These funds are ideal for long-term financial goals like retirement, child education, and wealth accumulation.
Fund managers select fewer stocks, enabling them to focus deeply on each holding.
With concentrated positions, focused funds can outperform in bullish markets if their stock picks do well.
Fund managers may dynamically shift between market caps or sectors based on market cycles.
Each fund type comes with its own set of risks that investors should evaluate before investing, as outlined below:
Mid- and small-cap segments can be volatile, affecting fund performance during downturns
Sector-wide slowdowns may drag the portfolio despite diversification
Stock-specific risk is higher due to concentration
Underperformance in one or two key holdings can significantly impact returns
The performance of multi-cap and focused equity funds can vary based on market conditions, as shown below:
Bull markets: Focused funds may outperform due to concentrated high-growth bets
Volatile or bearish phases: Multi-cap funds may offer better protection due to diversification.
Multi-cap funds offer broad diversification across large-, mid-, and small-cap stocks, providing a balanced exposure to different company sizes. These funds simplify investment decisions by letting fund managers handle asset allocation, thereby offering potential for better returns with reduced risk—ideal for long-term wealth creation.
Selecting the right fund depends on your risk profile and experience level. Here’s a quick guide to help you decide:
Investor Profile |
Suitable Fund Type |
|---|---|
Conservative to moderate risk taker |
Multi-cap fund |
Aggressive investor with high risk appetite |
Focused equity fund |
New investor starting in equities |
Multi-cap fund |
Experienced investor seeking alpha |
Focused equity fund |
Since both are categorised as equity-oriented mutual funds, the taxation remains consistent:
Short-Term Capital Gains (STCG): 15% if redeemed within 12 months
Long-Term Capital Gains (LTCG): 10% (above ₹1 Lakh per year), if held for more than 12 months
Before investing in any equity fund, consider the following key factors to make an informed decision:
Fund manager’s track record
Expense ratio and exit load
Historical performance compared with peers and benchmarks
Alignment with your investment horizon and financial goals
Multi-cap funds offer balanced exposure and controlled risk, making them suitable for most retail investors. Focused equity funds are better for experienced investors willing to accept higher volatility for potentially greater returns. The right choice depends on your goals, risk appetite, and investment horizon.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Yes. Focused funds can invest across market capitalisations including small-cap, mid-cap, and large-cap companies.
Multi-cap funds are required by SEBI to maintain a minimum allocation of 25% each in large-cap, mid-cap, and small-cap stocks. Fund managers may rebalance portfolios periodically, often quarterly or as market conditions and regulations necessitate.
Focused equity funds invest in a limited number of stocks, which can lead to concentration risk if a few holdings underperform. They are also subject to general market risks, sectoral exposure risks, and volatility across market cycles.
Different fund types vary by their investment focus. For example, equity funds invest primarily in stocks, debt funds in fixed-income securities, hybrid funds combine equity and debt, while index funds replicate benchmark indices. Each follows its own strategy and objectives.
Multi-cap funds diversify across large-cap, mid-cap, and small-cap stocks, helping spread risk. Focused equity funds, by investing in a limited number of stocks, carry higher concentration risk, as portfolio performance depends more heavily on fewer companies.
As per SEBI’s mutual fund classification rules, an Asset Management Company (AMC) can launch only one focused equity fund. This ensures consistency across offerings and prevents duplication of the same scheme category within a single AMC.
Multi-cap funds are required by SEBI to allocate at least 25% each to large-cap, mid-cap, and small-cap stocks. This structure ensures diversification across company sizes, allowing investors exposure to different segments of the equity market.
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