Difference between multi-cap and focused equity fund

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If you want to invest in the stock market but lack large funds, or market expertise, or both, there are diversified schemes that you can choose from. Options like multi-cap, flexi-cap, focused mutual funds, etc. are great for retail investors who lack expert knowledge and want a calculated diversification of investment.

Multi-caps and focused mutual funds fall under a similar category, but there are some significant differences between the two that investors should know.

Multi-cap fundsFocused equity funds
MeaningMulti-cap is a type of equity mutual fund. It promises significant flexibility, due to which it stands out among the fund category. They are permitted to invest in stock all through market capitalization. The investment can be made in different proportions and across various sectors.A focused equity fund is a category under multi-cap mutual funds. They are also permitted to invest in stocks all through market capitalization but its portfolio can consist of up to 30 stocks only. Its objective is to give high returns by investing in potentially growing companies. A Systematic Investment Plan (SIP) can also be started in focused funds. You can select the frequency and the amount of such investment.
Risk factorMulti-cap funds are less risky as they take many companies under their portfolio. If some of the companies are not performing well, it does not affect the fund as much overall.Focused equity funds are at high risk as they take limited companies under their portfolio. If these companies perform poorly, they are more vulnerable to the fall.
The investment madeAccording to SEBI rules, a multi-cap fund must invest a minimum of 25% each must be invested in small, mid and large-cap companies respectively.The investment strategy followed in a focused equity fund is to select the best-performing stocks that can give high returns. These 30 stocks can be of companies from any category.
Dependency on Fund ManagerTo reach the objective of the multi-cap scheme, the fund manager tries to find out ways for diversification of the investments. They can invest all through market capitalization as per their choice.In the case of the best focused equity fund, fund manager’s expertise is tested more as they need to choose the 30 potential stocks with the highest return. They need to be careful and pick the right stocks after a lot of consideration. The dependency on fund manager expertise remains in both, but a little higher in focused funds.
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In conclusion

Despite the differences, the taxation on both these fund types is the same as they are essentially equity funds. With the right investment apps, you can invest in either one of these two, depending on your risk appetite and investment objective. If you are a beginner at investing, choose an app with a user-friendly interface like the moneyfy app for a convenient trading experience.

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