Multi-Cap Fund
Multi-cap funds must invest at least 25% each in large-cap, mid-cap, and small-cap stocks as mandated by SEBI's September 2020 circular. The mandatory allocation ensures genuine multi-cap exposure rather than large-cap dominance.
Multi-cap funds are a SEBI-mandated equity mutual fund category that must maintain a minimum allocation of 25% each to large-cap, mid-cap, and small-cap stocks, with the remaining 25% freely allocated across any market-cap segment. This structure was formalised in SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2020/130 (September 2020), replacing the earlier open-mandate "multi-cap" category that had evolved into de facto large-cap funds.
How the category is defined
Before September 2020, multi-cap funds had no minimum allocations to mid- and small-cap stocks. Empirically, most had drifted to 70–80% large-cap exposure. SEBI's September 2020 circular introduced strict floors: minimum 25% large-cap (rank 1–100), minimum 25% mid-cap (rank 101–250), minimum 25% small-cap (rank 251+), leaving 25% discretionary.
The revised mandate caused significant industry disruption: existing multi-cap funds were required to either comply with the new floors or reclassify. Several AMCs converted their existing multi-cap schemes to Flexi-Cap (a new category created simultaneously by the same 2020 circular) to retain allocation flexibility. Fund houses may operate one multi-cap and one flexi-cap fund as separate products.
The mandatory 25% small-cap floor meaningfully raises the risk profile of multi-cap funds relative to large-cap or flexi-cap funds, since small-cap allocations amplify volatility and liquidity risk.
What investors should look at
- Effective small-cap exposure: A 25% small-cap floor is a mandatory minimum, not a ceiling. Some multi-cap funds hold 30–40% in small-caps for return enhancement. Review the factsheet's market-cap breakdown monthly.
- Portfolio turnover: Rebalancing across three market-cap bands — especially after sharp mid/small-cap corrections — generates higher turnover than single-segment funds. Turnover above 100% is common; check the annual report.
- Benchmark choice: Many multi-cap funds benchmark against Nifty 500 Multicap 50:25:25 TRI (launched post-2020 to mirror the SEBI mandate). Others use Nifty 500 TRI. Ensure like-for-like benchmark comparison.
- Category vintage: Post-September 2020 multi-cap funds have a shorter live track record under the current mandate. Five-year returns bridging the pre-2020 period reflect the old flexible mandate — weight recent post-2020 data more heavily.
Worked example
As at 31 March 2025, a representative multi-cap fund allocation (source: monthly factsheet — illustrative):
| Segment | Mandate Minimum | Actual Allocation |
|---|---|---|
| Large-Cap (rank 1–100) | 25% | 38% |
| Mid-Cap (rank 101–250) | 25% | 32% |
| Small-Cap (rank 251+) | 25% | 28% |
| Cash + Debt | — | 2% |
This fund held above the 25% minimum in each band. The blend produces a risk profile meaningfully different from either a pure large-cap or a pure small-cap fund. Nifty 500 Multicap 50:25:25 TRI returned approximately 22% p.a. over 3 years to March 2025 — a reasonable benchmark for evaluating this category.
See also
Primary source
SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2020/130 (11 September 2020) — Categorisation of Multi Cap Fund: sebi.gov.in. AMFI Bi-Annual Categorisation List: amfiindia.com.
Past performance is not indicative of future returns. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. ARN-314872. APMI APRN-01658. Content is informational and not investment advice.