21 Mar, 2025
3 mins read
When it comes to equity mutual funds, investors often come across terms like multi-cap funds and flexi-cap funds, both of which promise diversification and growth. However, while they may seem similar, there are key differences that can impact your investment strategy. Choosing between them depends on factors like your risk appetite, market conditions, and investment goals. In this article, we’ll break down the differences between multi-cap and flexi-cap funds to help you make a well-informed decision.
Multi-cap and flexi-cap funds are both equity mutual funds that invest across large-cap, mid-cap, and small-cap stocks. However, the key difference lies in their investment approach. The investment mandate of both funds is different although they are equity mutual funds.
A multi-cap fund invests across all three market capitalisations – large-cap, mid-cap, and small-cap stocks. According to SEBI regulations, these funds must allocate at least 25% of their assets to each category. This ensures you get balanced exposure to various market segments. You can benefit from growth opportunities across different company sizes. According to AMFI, Multi-cap funds have to invest at least 75% of their total assets in equities and equity-related instruments.
Flexi-cap funds offer greater flexibility in their investment strategy. They can invest in any combination of large-cap, mid-cap, or small-cap stocks without strict allocation requirements. SEBI guidelines require flexi-cap funds to invest at least 65% of their total assets in equities. This flexibility allows fund managers to adjust portfolios based on market conditions. When you invest in flexi-cap funds, your money adapts to changing market opportunities.
|
Feature |
Multi-Cap Funds |
Flexi-Cap Funds |
|---|---|---|
|
Investment Mandate |
These funds must allocate at least 25% each to large-cap, mid-cap, and small-cap stocks, ensuring diversification across market segments. |
These funds have no fixed allocation rules and can invest in any proportion across large, mid, and small-cap stocks, depending on market conditions. |
|
Equity Allocation |
Must invest at least 75% of the portfolio in equities, limiting the ability to hold cash or debt instruments. |
Required to invest at least 65% in equities, allowing fund managers more flexibility to hold cash or debt during uncertain times. |
|
Flexibility |
Less flexibility, as fund managers must maintain fixed exposure across all three market cap segments, even when certain segments underperform. |
Highly flexible, allowing fund managers to adjust allocations based on market trends, favoring large caps in downturns or small/mid-caps during bullish phases. |
|
Risk Level |
Higher risk due to mandatory exposure to mid and small-cap stocks, which are more volatile and sensitive to market fluctuations. |
Lower risk since fund managers can shift towards stable large-cap stocks during volatile periods, reducing exposure to riskier segments. |
|
Return Potential |
Offers higher return potential as small and mid-cap stocks can generate significant growth but with greater volatility. |
Provides more stable returns with decent growth potential, as fund managers can allocate funds dynamically to manage risks effectively. |
Both multi-cap and flexi-cap funds offer unique advantages for different investor needs. The main difference lies in their investment mandates and flexibility. Multi-cap funds provide a structured approach with mandatory allocations. Flexi-cap funds allow dynamic adjustments based on market trends. Understanding these differences helps you make informed decisions aligned with your financial goals.
Yes, you can invest in both multi-cap and flexi-cap funds. Doing so can enhance diversification and help capture growth opportunities across different market capitalisations. It balances risk and returns in your portfolio.
There is no one-size-fits-all answer, as both fund types serve different investment strategies. Multi-cap funds ensure a balanced allocation across market caps, while flexi-cap funds offer adaptability based on market trends. The better choice depends on your investment objectives, risk appetite, and preference for flexibility or structured diversification.
To decide between multi-cap vs flexi-cap funds, consider factors such as your risk tolerance, investment goals, and time horizon. Multi-cap funds maintain a structured allocation across large, mid, and small-cap stocks, ensuring broad diversification. In contrast, flexi-cap funds provide fund managers the freedom to adjust allocations dynamically based on market conditions, offering flexibility to navigate different market cycles.
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