Multi Cap Funds vs Flexi Cap Funds: How Are They Different?

Multi-cap funds have been around for a while. Earlier, these funds could invest in small, mid, and large-cap segments without any allocation restrictions. But, in September 2020, SEBI issued a new mandate which required such funds to invest at least a 25% stake in large, mid, and small-cap segments.

Although this mandate ensured hedging, it took away fund managers’ freedom to make allocations. To address these concerns, SEBI announced a new category called flexi cap mutual funds in November 2020. The flexi cap fund's meaning is simple; this category allows investing in small, mid, and large-cap segments without any percentage restrictions. The only restriction is that at least 65% of the fund’s assets should be invested in equity, with no limitations on the market cap.

Both schemes are worth taking stock of. To do so, we must first learn how one is different from the other.

What are multi-cap funds?

Multi-cap funds are mutual funds that primarily invest in equity and equity-related stocks. They invest in a suite of companies with varying market capitalisations across small-cap, mid-cap, and large-cap. These funds offer the stability of large-cap stocks along with the growth potential of mid and small-cap stocks. They are ideal for investors seeking long-term growth and diversification in a single fund.

What are flexi-cap funds?

Flexi-cap funds are equity mutual funds with at least 65% allocation in equity and equity-related instruments. However, unlike multi-cap funds, flexi-cap funds do not have set proportions for large, mid, and small-cap stocks.

Key differences between multi-cap funds and flexi-cap funds

Things to note before investing

- As an investor, if you can invest for a minimum period of five years, then both multi-cap and flexi-cap funds are suitable. However, one must be prepared for high risks that come with greater returns.

- Be familiar with your risk profile and select a scheme that fits your investment and financial goals. While fixing your investment tenure, plan your financial objectives and take into account possible risks.

- At the time of selecting your investment scheme, you will have two options - lump sum investments and Systematic Investment Plans (SIPs). SIP helps to mitigate the risks of volatile markets. The rupee-cost-averaging feature of SIP will compound your wealth in the long term.  Choose an investment scheme suitable to your current financial condition and future goals.

Conclusion

It’s no secret that both multi and flexi-cap mutual funds award investors an opportunity to invest across market caps. By doing so, they end up mitigating risks and generating higher returns for investors.

If you’re looking to invest in one of these two funds, or start a fresh mutual fund portfolio, turn to Tata Capital Moneyfy. We offer a user-friendly portal to compare and apply for different investment instruments. With the Tata Capital Moneyfy app, you can truly take your investment experience to the next level.

Frequently asked questions

1. Which is better flexi-cap or multi-cap?

Multi-cap funds invest in a mix of large-cap, mid-cap, and small-cap stocks as per a pre-defined allocation structure. Flexi-cap, on the other hand, also invests in companies across different market capitalisations but with at least 65% of investments in equity and equity-related stocks.

2. Is it good to invest in a flexi-cap fund?

Investing in a Flexi-cap fund can be a good choice if you have a moderate to high-risk tolerance and want to invest in a broad range of market capitalisations.

3. How does a flexi-cap fund work?

A flexi-cap fund invests at least 65% of its assets in equity and equity-related instruments across large-cap, mid-cap, and small-cap stocks.