Multi Cap Fund

Indian equity funds are sorted by SEBI into categories, largely by the size of the companies they buy. A multi cap fund is the category that must hold all three sizes at once.

The definition has two layers. At least 75 per cent of total assets must be in equity and equity related instruments. And within that, at least 25 per cent of total assets must be in each of large-cap, mid-cap and small-cap companies. The fund manager decides what to do with the remaining 25 per cent of equity room and the non-equity residual.

So the allocation is, in effect, forced: however expensive small caps look, or however safe large caps seem, a multi cap fund must keep a quarter of its assets in each.

That is exactly what separates it from its close cousin, the flexi cap fund, which needs only 65 per cent in equity and can move dynamically across large, mid and small caps with no mandated split.

What "large", "mid" and "small" mean (Box 2.2), by full market capitalisation rank:

The same definitions apply to every scheme category that uses them.

Multi cap against the other market-cap categories in SEBI's scheme categorisation:

The workbook cites the multi cap asset allocation circular of 11 September 2020 and restates the 75 per cent / 25-25-25 definition "vide SEBI Circular dated February 26, 2026". Under the categorisation framework there can be only one scheme per category in a fund house (with exceptions for index funds, ETFs, FoFs and sector or thematic funds).

For a distributor, the forced allocation cuts both ways. It guarantees genuine exposure to mid and small caps, which offer higher return potential; and it guarantees that a quarter of the portfolio is always in small caps, which the workbook describes as riskier than larger companies.

A multi cap fund has total assets of Rs 8,000 crore. The figures are illustrative; the percentages are the workbook's minimums.

The manager has Rs 2,000 crore of equity to place freely among the three, and up to Rs 2,000 crore in other permitted assets such as money market instruments.

Suppose the manager is nervous about small caps and wants only 15 per cent there. A multi cap fund cannot do that — Rs 1,200 crore would breach the Rs 2,000 crore floor. A flexi cap fund of the same size could: it needs only Rs 5,200 crore (65 per cent) in equity, with no minimum in any size bucket.

Now a stock reclassification. A company ranked 240th by full market capitalisation — a mid cap — rises to 95th, becoming a large cap. The same holding now counts towards the fund's large cap bucket instead of mid cap, which can change how close the fund is to each 25 per cent floor.

For an investor, Rs 1,00,000 in this fund means at least Rs 25,000 is always in small caps — worth knowing before recommending it to someone with low risk tolerance.

Chapter 2 (Concept and Role of a Mutual Fund), section 2.2, lists Multi Cap Fund first among SEBI's 13 equity sub-categories, with the Box 2.2 market-cap definitions and the Flexi-cap Fund as the 13th. A Chapter 8 sample question on Securities Transaction Tax uses a multi-cap fund as its correct option — redemption of an equity fund attracts STT. Expect definition questions (75 per cent, 25 per cent each), a comparison with flexi cap (65 per cent, dynamic), and the market-cap rank boundaries.

• Multi cap: 75% equity with at least 25% each in large, mid and small cap. Flexi cap: 65% equity, no split.
• Large cap = ranks 1–100; mid cap = 101–250; small cap = 251 onwards, by full market capitalisation.
• The 25% floors are percentages of total assets, not of the equity portion.
• Multi cap is forced; flexi cap is dynamic. An option describing multi cap as "the fund manager decides the split" describes flexi cap.
• Large and Mid Cap Fund needs 35% + 35%, not 25% + 25%.
• Focused funds hold a maximum of 30 stocks and must say whether their focus is multi, large, mid or small cap.
• One scheme per category per fund house.