Investors looking to diversify and build their portfolios may find it difficult to decide between Multi-Cap and Flexi Cap mutual funds. Flexi-cap funds require a minimum of 65% in stocks, whereas multi-cap funds demand a minimum of 75% in equities, indicating at least 3/4 of the scheme’s total assets must be invested in equity and equity-related securities. Flexi-cap funds can invest in any market cap, with no predetermined proportion of allocation, unlike multi-cap funds, which must allocate at least 25% of their portfolio to large, mid, and small-cap companies, each.
There may be scenarios when you want to select a more diversified approach or want the freedom to take advantage of opportunities across market groups. Hence, developing a strong investment plan demands having a solid understanding of these funds. In this article, we’ll look into the key distinctions to keep in mind.
What is a multi-cap Mutual fund?
Multi-cap funds invest in securities with diverse market capitalizations that include large-cap, mid-cap, and small-cap corporations. A minimum of 75% of total assets must be invested in stock and equity-related securities in the following ways:
1. 25% of total assets in large-cap companies (Top 100 companies by Market Cap)
2. 25% of total assets in mid-cap companies (101 – 250 companies by Market Cap)
3. 25% of total assets in small-cap companies (250+ companies by market cap)
The remaining 25% of assets can be invested as per the fund manager’s discretion.
What is a Flexi Cap Mutual Fund?
A flexi cap fund is a versatile investment vehicle that possesses the flexibility to allocate its investments across a diverse spectrum of market capitalizations.
Flexi cap allows investors the freedom to spread their money among multiple market capitalization sectors. These comprise stocks with a large, mid, and small market cap. Flexi Cap funds take a more flexible stance than other mutual fund types with clear mandates.
Differences between Multi-Cap Funds and Flexi-Cap Funds
| Multi-Cap Funds | Flexi-Cap Funds |
| Typically, in these funds, a fixed allocation is maintained throughout large, mid-cap, and small-cap corporations. Because of set allocations, the risk-return profile may be better balanced. | A Flexi-Cap Fund invests in companies of all market capitalizations, including large, midsize, and small companies. |
| Multi-Cap Funds must invest 75% of their entire assets in stock and equity-related products. | In order to qualify as a Flexi-Cap Fund, investments in equity and products with an equity component must account for at least 65% of the total assets of the scheme. |
| 25% allocation of their portfolio should be done into large-cap, mid-cap, and small-cap companies. | These do not have any fixed allocations and can invest in a range of capitalizations. |
| Suitable for investors with a high-risk desire owing to the investment into large-cap, mid-cap, and small-cap companies. | Suitable for those who are looking for larger long-term profits, flexibility and moderate returns. |
| Most multicap funds are benchmarked against NIfty 500 Multicap Index | Flexi-cap funds are benchmarked to Nifty 500 Index |
Which one is for you: Multi Cap or Flexi Cap
In the end, the selection is determined by your unique financial situation and preferences. It is critical to consider your risk tolerance, investing objectives, and time horizon. Investors may gather additional information from My Money Panda. It is your one-stop shop for financial advice.
FAQs
1. Is Multicap and Flexicap the same?
Yes, because both Multi-Cap and Flexi-Cap funds invest across different market capitalizations, they are similar. However, their levels of flexibility vary. Typically, multi-cap funds keep set allocations. Flexi-Cap funds feature more adaptable allocation strategies that can change depending on the state of the market.
2. Is the Flexi Cap fund risky?
Yes, the Flexi-Cap fund is risky. The active management strategy of these funds can expose them to risk if the fund manager’s actions do not correspond to market movements. As a result, Flexi Cap funds are better suited for investors with a higher risk tolerance and a longer investment horizon. These are excellent for those who are looking for larger returns but accept greater market volatility.
3. Is Flexi Cap fund good for the long term?
Yes, for investors with a higher risk tolerance and a clearly defined investment strategy, Flexi Cap funds may be acceptable for the long term. their adaptability to shifting market conditions and their ability to invest across market capitalisations. They are advantageous for investments with longer time horizons.
4. What are the disadvantages of flexi cap funds?
Market timing risk is introduced because the success of these funds depends on the fund manager’s capacity to make timely allocation decisions. Additionally, it may be difficult to forecast their behaviour due to the lack of a regular investment strategy. These may be unsuitable for risk-averse or short-term investors are Flexi Cap funds.
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