India’s equity markets have gone through sharp rallies and equally sharp corrections over the past decade. From the pandemic-led crash in March 2020 to the strong recovery that followed, investors have experienced both extremes of market behaviour.
Against this backdrop, many investors seek a way to participate in long-term growth without relying too heavily on just one segment of the market. Multicap funds, which invest across large, mid, and small-cap stocks in mandated proportions, are structured to provide that broad exposure within a single portfolio.
However, diversification alone does not automatically lead to smoother outcomes. To evaluate multicap investing meaningfully, it is important to look beyond the label and examine the numbers.
Multicap Funds After 2020: What the Data Shows
Let’s evaluate the multicap category correctly. Investors need to understand both the regulatory change in 2020 and how performance metrics have behaved since then.
Until September 2020, multicap funds were required to maintain at least 65% in equities but had no mandated allocation across market capitalisations. In practice, most schemes were heavily biased toward large caps, often allocating 70–80% to the top 100 stocks. Mid and small-cap exposure was opportunistic rather than structural. As a result, pre-2020 multicap funds largely behaved like diversified large-cap portfolios.
(Source: Circular issued by the Securities and Exchange Board of India on multicap fund asset allocation, September 2020.)
Following SEBI’s reclassification, multicap funds must now allocate a minimum of 25% each to large caps, mid caps and small-caps. The remaining 25% can be deployed flexibly. This rule embedded permanent mid and small-cap exposure into the category and altered both volatility and return participation.
AUM Evolution: Reclassification and Rebuild
The asset data reflects the transition clearly.
As per AMFI data, multicap funds managed ₹2.16 lakh crore as of January 2026. Total equity mutual fund AUM stood at approximately ₹34.86 lakh crore, placing the category at 6.21% of overall equity assets.
Historical comparison provides context.
| Period | Multicap AUM (₹ lakh crore) | Total Equity AUM (₹ lakh crore) | Share of Equity (%) |
| Jan 2020 | 1.55 | ~7.68 | 20.27% |
| Jan 2021 | 0.87 | ~9.06 | 9.69% |
| Jan 2026 | 2.16 | ~34.86 | 6.21% |
Source: AMFI
Between January 2020 and January 2021, category AUM declined 43.5%. This contraction was driven primarily by fund migration to the flexicap category rather than market losses. Large schemes chose flexibility over the mandated 25% small-cap allocation, leading to a mechanical reduction in multicap assets.
From the January 2021 base of ₹0.87 lakh crore, AUM has grown 146.4% to current levels. The expansion coincided with strong mid and small-cap performance between 2023 and 2025, a phase during which the mandated allocation enhanced participation.
However, despite absolute growth, the category’s share of total equity AUM has declined from 20.27% to 6.21%. Multicap funds are no longer the default diversified category; they now represent a more specific allocation choice.
Return Profile: Category vs Benchmarks
The following category returns are based on regular plan category averages.
| Period | Multicap Category Average |
| 1-year return | 14.49% |
| 3-year CAGR | 19.94% |
| 5-year CAGR | 13.86% |
Source: calculated based on AMFI NAV data
Benchmark comparison below uses price return indices, not TRI, for alignment with available index capture data:
| Index (Price Return) | 1-Year (%) | 5-Year CAGR (%) |
| Nifty 50 | 13.80% | 11.62% |
| Nifty 500 | 16.53% | 13.72% |
| Nifty Midcap 150 | 23.08% | 19.90% |
Source: NSE
Over five years, the multicap average of 13.86% exceeded the Nifty 50 CAGR but trailed the broader Nifty 500 and significantly trailed the Nifty Midcap 150. The difference reflects allocation discipline. With a minimum 50% in mid and small-caps, multicap funds capture part of broader market rallies but do not fully replicate pure midcap performance.
It is important to note that if TRI benchmarks were used, index returns would be higher due to dividend reinvestment. The above comparison strictly aligns price returns with price-based capture calculations.
Rolling Return Behaviour
Five-year rolling returns were analysed on a monthly rolling basis over the last decade, where data availability permits.
Observed dispersion across funds ranges from 0.76% to 22.95% for five-year rolling CAGR windows. This wide range indicates that while allocation structure is mandated, stock selection continues to materially influence long-term outcomes.
Rolling analysis also shows sensitivity to market cycle entry. Investments made before extended midcap rallies produce materially higher rolling outcomes compared to those made at valuation peaks.
Downside Behaviour: March 2020
Maximum drawdown during the February–March 2020 correction offers insight into risk transmission.
| Index / Category | Peak-to-Trough Drawdown (%) |
| Multicap Category | -40.5% |
| Nifty 50 | -39.2% |
| Nifty 500 | -41.0% |
| Nifty Midcap 150 | -43.8% |
Source: NSE
The category declined slightly more than the Nifty 50 but less than the Nifty Midcap 150. Recovery timelines were broadly aligned with the broader market at approximately seven to eight months.
The data suggests that mandatory mid and small-cap exposure increases drawdown depth relative to pure large-cap indices but does not behave as aggressively as standalone mid-cap strategies.
Capture Ratios: Full Cycle Analysis
Upside and downside capture ratios below are calculated against price return benchmarks over a five-year trailing period ending February 2026.
| Benchmark | Upside Capture (%) | Downside Capture (%) |
| Nifty 50 | 101.1% | 132.2% |
| Nifty 500 | 77.9% | 101.7% |
| Nifty Midcap 150 | 56.2% | 79.4% |
Source: NSE
Against the Nifty 50, multicap funds capture 101.1% of market gains but also 132.2% of market declines. Relative to the broader Nifty 500, participation is nearly symmetrical with modest downside containment. Against the Nifty Midcap 150, participation is lower on both upside and downside, reflecting moderated exposure compared to pure midcap strategies.
The capture ratios confirm that multicap funds sit between large-cap stability and mid-cap aggression.
Final Takeaway
The multicap category after 2020 is defined by rule-based allocation rather than fund manager discretion across market capitalisations. The embedded 50% minimum in mid and small caps (i.e. 25% in each cap) structurally elevates volatility relative to large-cap funds while enhancing participation during broader market expansions.
The 43.5% asset contraction in 2021 reflected classification migration rather than investor exit. The subsequent 146.4% growth reflects rebuilding within a clearly defined framework. However, the decline in overall equity market share indicates that multicap is no longer a catch-all diversified strategy but a deliberate allocation.
Performance data shows moderate outperformance versus large caps over five years, but not parity with pure midcap indices. Drawdown and capture statistics confirm higher sensitivity to market cycles compared to large-cap funds.
For investors, multicap funds represent diversified equity exposure with a mandated growth bias. Allocation decisions should be aligned with a long-term horizon and tolerance for mid and small-cap volatility rather than recent return momentum. Investors can also use the goal calculator to estimate the corpus required for their financial goals and align their investments with an appropriate time horizon and return expectations. Explore the goal calculator here.
Disclaimer
Views provided above are based on information in public domain and subject to change. Investors are requested to consult their financial advisor for any investment decisions.
Source: AMFI, Bloomberg, MFI Explorer. Data as on February 28, 2026 or as latest available.
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