Best Multicap Mutual Funds To Invest In 2025

Multicap mutual funds are a type of equity mutual fund that invests in a mix of large-cap, mid-cap, and small-cap stocks, offering diversification across different market capitalisations. This investment strategy aims to provide a balance between potential growth and risk management. 

These funds offer excellent diversification because you spread your investments across different-sized companies. It allows you to get profits from high-growth companies while gaining from the stability of established businesses. With multicap mutual fund investments, you get comprehensive market coverage without buying multiple funds. In this article, we will discuss some of the top multicap mutual funds in India in 2025. Further, we will explore the benefits of these funds along with a comparison of multicap, flexicap, and small-cap mutual funds.

Top Multicap Mutual Funds For 2025

Top multicap mutual funds can be decided based on different parameters of mutual fund performance. These parameters mainly include AUM, expense ratio, historical returns, and so on. We have selected the top multicap mutual funds based on the following parameters:

1. The AUM should be more than INR 1,000 crores.
2. The expense ratio should be less than 1%.

Based on the above parameters, the following are the top 5 multicap mutual funds that have offered a higher 5-year CAGR:

Source: Tickertape¹

Why Choose Multicap Over Large-Cap Or Mid-Cap?

Large-cap mutual funds invest in the top 100 big companies, while mid-cap funds invest in medium-sized companies. Multicap mutual funds can invest in companies of any size. They are better than large-cap and mid-cap mutual funds for the following reasons:

1. Flexibility Across Market Cycles

Multicap funds invest in large, mid, and small-cap stocks. SEBI mandates a minimum of 25% in each large, mid, and small-cap companies. The fund manager can choose to invest the remaining 25% in any fund of their choice to maximise fund returns². 

This design gives you balance. In bull markets, the mid and small-caps may lead in growth. When markets dip, the large-cap portion can act as a stabiliser. Multicap mutual funds are well-positioned to profit from various market cycles. 

2. Balanced Risk–Return Profile

You get more than just one type of exposure. Large caps bring stability. Mid-caps offer steady growth. Small caps bring high-return potential over the long term. As a result, multicap funds moderate downside in tough times while still capturing upside.

Multicap funds give you the best of all worlds. One fund provides access to multiple segments. Investors get better diversification, professional management, and a more predictable mix of risk and return.

Benefits Of Multicap Funds

Investing in multicap funds has the following advantages:

1. Diversification Across Market Caps: Multi-cap funds invest in large, mid, and small-cap stocks. This mitigates overall portfolio risk and provides relative stability.
2. Growth Potential Of Small And Mid-Caps: Small and mid-cap stocks have the potential to grow more than large caps in bull markets. Multicap funds help tap into this growth.
3. Allows Tactical Allocation: Fund manager can shift allocation between large, mid, and small caps based on prevailing market conditions (while maintaining at least 25% allocation in each market cap)
4. Single Window For Diversification: An investor can simply invest in a multicap fund instead of funds dedicated to specific market caps.
5. Professional Management: Multicap funds are professionally managed. Fund managers with skills and resources analyse stocks across market caps to design and alter the portfolio in response to performance, growth potential, market conditions, and other factors.
6. Liquidity And Transparency: The open-ended structure of multicap funds allows easy entry and exit. Funds regularly provide detailed portfolio disclosures. 

Multicap vs Flexicap vs Small-Cap: Which One Wins?

Multicap Funds must allocate at least 25% each to large, mid, and small-cap stocks. This offers built-in diversification and a structured mix across market caps. Investors get a minimum of 50% exposure to mid and small-capital companies of higher growth and higher volatility.

Flexicap Funds, on the other hand, have no rigid allocation rules. Fund managers can shift between large, mid, and small-caps freely, based on market outlook. That agility allows for higher defensive positioning or risk-taking when needed.

Small-cap Funds focus solely on small-cap companies. These funds offer the highest growth potential. However, their high volatility and sensitivity to market fluctuations make them suited only for investors with strong risk appetite and long horizons.

Here's a quick comparison of the different types of mutual funds:

The right mutual fund for you depends on your risk appetite and goals:

1. Opt for multicap if you value disciplined exposure across segments and can tolerate moderate volatility.
2. Choose Flexicap if you are comfortable with manager discretion and prefer to benefit from market cycles with high volatility.
3. Opt for Small-cap only if you are aiming for aggressive growth and can weather sharp swings.

Investing Smart With Multicap Funds

Multicap funds have moderate growth and reward potential. By investing for the long term and focusing on balancing the portfolio, you can ensure better returns:

1. Ideal SIP Duration

Think long-term. Experts suggest a minimum investment horizon of 5–7 years for multicap funds to ride out volatility and capture growth potential. Both stable investments and growth companies can offer better returns with a long investment horizon.

2. Monitoring And Rebalancing

An annual review of your portfolio is generally sufficient. Look for meaningful shifts in performance or goals to prompt action. Some investors review every 6 months and rebalance only when allocation drifts by around 5% from target levels. Maintaining a few funds is generally easier, and you can revisit portfolios semi-annually to rebalance if necessary. It is also wise to rebalance after you receive a bonus to ensure investment discipline and avoid over-diversification. 

When you invest in multiple mutual funds, review whether the funds invest in the same type of companies. In that case, rebalancing is crucial because investing in the same companies through different funds offers a false sense of diversification. With true diversification across funds, your investments must be in varied assets across sectors.

3. Diversification Into Fixed Income Options

Putting all your money into only multicap mutual funds can be very risky, as 75% of the investments are going into the stock market only. The remaining 25% is also in the hands of the mutual fund manager. The AMC may decide to put them again in some stocks. Hence, it is always advisable to diversify your portfolio with some fixed-income opportunities too, such as corporate bonds. Bonds offer stable returns and help you balance your portfolio during market stress. You can also put your money in other fixed returns generating assets like Securitised Debt Instruments (SDIs), high-yield corporate fixed deposits, P2P lending, or government schemes. However, these fixed-income securities also come with certain risks, and hence you should analyse your risk appetite before selecting the right avenue for you.

Conclusion

Multicap mutual funds offer a rare balance. They are structured yet agile, growth-focused yet diversified. These funds provide a smart starting point for investors seeking broad market exposure without incessantly second-guessing asset allocation.

By following a disciplined SIP strategy, adopting a long-term approach, and reviewing from time to time, multicap funds can help you ride through the market's whirlwinds and maintain your alignment with financial goals. 

They may not always be the shiniest performers on any given cycle, but in the long run, they tend to create long-term wealth. To learn more about investments and portfolio diversification, sign up on Grip Invest today.

Frequently Asked Questions On Multicap Mutual Funds

1. Are multicap funds suitable for first-time investors?

Yes, Multicap funds provide inherent diversification by investing in large, mid, and small-cap stocks. This minimises the need to select individual market segments. But first-time investors should expect some volatility, particularly due to small-cap and mid-cap exposure. Using multicap funds combined with a long-term SIP approach (5–7 years) can be a good beginning. First-time investors should also diversify their portfolio with fixed-income opportunities like corporate bonds to maintain the overall return of the portfolio during market stress.

2. Which is better in 2025, multicap or flexicap mutual funds?

There is no one-size-fits-all. Multicap funds have a rigid structure (25% each in large, mid, and small caps), whereas flexicap funds give fund managers the ability to change allocations according to market direction.

• Pick a multicap fund if you like structured diversification.
• Pick a flexicap fund if you believe in your fund manager's tactical decisions and need responsiveness in volatile markets.

For 2025, both options have high performers, but the suitable fit must suit your investment style and risk profile.

3. What is the ideal portfolio allocation for multicap funds in 2025?

Ideal portfolio allocation depends on your financial goals and how much risk you are willing to take. Nevertheless, for those with a moderate level of risk in 2025:

• 30–50% of your equity holding can be invested in multicap funds.
• Mix them with flexicap or large-cap funds for greater stability.

If you have a high risk appetite, you can raise the multicap share, but check whether your small-cap exposure is increased, increasing your risk. This is just an example of ideal portfolio allocation for multicap mutual funds; different investors may find a different allocation fit for their financial goals.

4. Are multicap funds tax-efficient?

They adhere to equity taxation principles:

• If you sell the funds within 1 year, they are considered as short-term capital gains. Taxation is 20% (up from 15% effective July 23, 2024)
• Selling multicap funds after 1 year results in long-term capital gains, and they are taxed at 12.5% over the INR 1.25 Lakh LTCG tax exemption threshold. 
• Dividends (if chosen) are added to your taxable income and are taxed based on your income slab².

Long-term investing not only lowers risk but also enhances post-tax returns.

References:

1. Tickertape, accessed from: https://www.tickertape.in/blog/best-multi-cap-funds-in-india/

2. Indiacorplaw, accessed from: https://indiacorplaw.in/2020/09/26/asset-allocation-for-multi-cap-funds/

3. ICICI Bank, accessed from: https://www.icicibank.com/blogs/mutual-fund/multi-cap-funds

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