There are many types of equity funds, but the most common is one that multiplies by market cap. Some sectoral equity funds are separate from a portfolio company's strategy while others adhere more strictly to a specific type of investing.
We will discuss the differences and similarities between multi-cap funds and focused equity funds. Multi-cap funds can invest in small, mid, or large companies across market capitalisations however they do have key differences from a focused equity fund.
What is a Multi-Cap Equity Fund?
In September 2020, the Securities and Exchange Board mandated that multi-cap equity funds invest at least 25% of their holdings in large-, mid- and small-cap companies. To comply with this rule, many multi-cap funds are selling some of their shares in large-chase companies from time to time to buy mid or small stocks.
Focused Equity Fund: Meaning
|Characteristics||Multi-Cap Equity Funds||Focused Equity Funds|
|Risks||A less risky investment strategy than a focused equity fund is one that is diversified.||Compared to mutual funds that invest in many stocks, which tend to be more stable, risky investments|
Keep in mind that managed funds currently have less potential than focused equity funds
|If most of these stocks do well, this fund should provide a higher potential for growth.|
|Asset classes where the funds invest|
At least 25% of funds should be invested in large-cap stocks.
– Mid- and small-cap securities should allocate at least a minimum of 15% to 20%.
|Investors can invest in up to 30 stocks of all company sizes with this account.|
|You should invest in companies across various industries.||Prioritize investing in a few sectors|
Fund manager’s expertise
|Like most mutual funds, where the manager is tasked with diversifying risk and choosing companies in a range of sizes that have high potential||Greater emphasis on how fund managers decide on the 30 stocks with highest potential for return.|
|Theme||Less focused on theme||May avoid investing in stocks from the PSU sector.|
Focused Fund and a Multi-Cap Fund have many similarities.
Both multi-cap equity funds and focused equity funds are taxed as equivalent to equity funds. Short-term capital gains (made by selling units held for less than a year) are taxed at 15%. Long-term capital gains (made by selling units owned for more than a year) are tax free if they're under Rs 1 lakhs.
2. Investors can put money into any size company
Multi-cap indexes and focused equity funds both contain companies of all sizes. This is different from size specific funds, such as large cap or mid-cap index funds.
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