We will deep dive into both categories, helping you identify what’s better for you.

The Story

We all know diversification is a must. It reduces the overall risk in an investment portfolio by ensuring that a loss in one area can be balanced by gains in another.

And for diversifying your portfolio, Multi-Asset and Multi-Cap mutual funds stand out as popular choices.

In September alone, investors poured ₹4070 crores into multi-asset funds, while multi-cap funds attracted ₹3509 crores. Both aim to spread your risk, but they do so in different ways, offering distinct opportunities depending on your investment goals.

Let’s understand each one of them.

Multi-Asset Mutual Funds

A multi-asset fund allocates your money in at least three asset classes (equity, debt, gold, real estate, etc.), with a minimum allocation of 10% in each of these asset classes.

This mandatory diversification helps to ensure that the fund does not become over-exposed to any single asset class. The idea is to give investors the benefit of diversification across multiple assets in a single fund.

Here, fund managers play an important role in deciding the percentage of funds to be allocated in each asset class.

​​Risk and return:
Multi Asset Funds could provide a smoother risk-return curve by including assets that typically move inversely to each other, such as gold and bonds alongside equities.

Investment objective:
Multi-asset funds aim for stability in different market conditions while aiming for moderate growth.

Multi-Cap Mutual Funds

A multi-cap fund, on the contrary, invests only in equities but across market capitalizations—large-cap, mid-cap, and small-cap stocks, a minimum of 25% in each.

The remaining 25% can be allocated according to the fund manager’s discretion, allowing them to adapt to market conditions and opportunities.

This mandatory diversification ensures that investments get diversified across the different market cap.

​​Risk and return:
Multi-cap funds are more volatile since they are entirely equity-focused but offer higher potential for long-term capital appreciation.

Investment objective:
Multi Cap Funds focus on aggressive growth by tapping into different segments of the equity market, making them better suited for long-term growth strategies.

So which one should you choose?

While a multi-asset fund diversifies your investments into multiple assets, a multi-cap fund is diversification within a single asset class–equity. So one is not an alternative to another.

However, if you’re seeking steady returns with a balanced approach, a multi-asset fund could be the way to go.

And if you’re looking to diversify within equity investments for potentially higher returns, a multi-cap fund may align better with your growth aspirations.