A Multi Cap Fund mandatorily invests at least 25% each in large-cap, mid-cap, and small-cap stocks — ensuring genuine diversification across market caps unlike the flexible flexi cap category.
SEBI introduced the Multi Cap category in September 2020 with a mandatory 25-25-25 allocation rule: minimum 25% in large-caps, 25% in mid-caps, and 25% in small-caps (remaining 25% at fund manager's discretion). This was designed to ensure these funds genuinely held mid and small-cap stocks — previously, many 'multi-cap' funds were heavily skewed toward large-caps. The minimum allocation across all three caps guarantees diversification across market segments.
Before 2020, funds called 'multi cap' could hold 90% large-caps and call themselves diversified. SEBI fixed this by mandating at least 25% in each of the three cap segments. A multi cap fund today is truly diversified: guaranteed exposure to large-cap stability, mid-cap growth, and small-cap potential all in one fund. The trade-off: the 25% forced small-cap allocation increases volatility compared to flexi cap funds that can reduce small-cap exposure.
Mandatory: ≥25% large-cap, ≥25% mid-cap, ≥25% small-cap stocks.
Remaining 25% at fund manager's discretion (can increase any segment beyond the minimum).
AMFI-defined lists determine which company falls in which category.
More volatile than flexi cap during downturns due to mandated small-cap exposure.