You must have heard of mid cap funds which are basically equity and open-ended funds investing roughly 65% of the corpus in equity and equity linked market instruments of mid-cap companies. These companies have been in the market for a sizable duration mostly and have better track records. Some of them may eventually metamorphose into large cap entities as well. This makes mid cap mutual funds more attractive for investors looking for moderately lower risks than small cap funds and interested in tapping growth potential of several entities. These funds are riskier than large cap funds although they are not as risky as small cap counterparts. They offer superior returns than large cap funds with 5-year average returns pegged at approximately 10.28% as per several reports.
Several mid cap entities will be on the verge of hitting it big. Fund managers should look to identify such opportunities for growth and tweak their portfolios likewise. This will help investors do very well with mid cap funds. Information about companies in the space is however not easy to find at all times. Fund managers need to do thorough research in this regard. Those with medium tolerance/appetite for risks and looking for more exposure to equity markets will naturally opt for these plans. You will require a long term horizon for investments while being comfortably inclined towards approximate returns hovering around the 10% mark.
Now you have to consider multi cap funds. These are different from mid cap mutual funds in many respects. These are diversified equity funds that invest in buying stocks of companies with varying market capitalization thresholds. The investments are done in diverse proportions in order to meet investment goals of the fund in question. Most of these funds have performed relatively well over the last few years while some have outstripped average returns handsomely. The advantage of investing in these funds is that you get a more diversified portfolio, thereby lowering risks. The risk quotient is anyway lower than small and mid cap funds although it is higher than large cap funds. This is because exposure may go up to mid and small cap funds at certain times in order to earn higher returns. These funds are not limited with the mandate to invest solely in a particular type of company. They can thus tap market opportunities better while tweaking the portfolio periodically for earning higher returns. Those with moderate appetite for risk may consider multi cap funds for creating wealth over the long term. These funds may generate higher returns than large cap counterparts although mid and small cap fund returns could be higher in most cases.
Hence, you should take a closer look at your own investment goals, risk-return ratio and your financial position before choosing between mid cap and multi cap funds. The latter promises a more long-term wealth creation oriented investment while the former promises higher returns with comparatively shorter horizons for investments. Risks have to be taken into account closely in this regard as well.