If you check a mutual funds app, you might have come across terms like smallcap, midcap and large cap. You might have also come across terms like flexicap and multicap.
As their name suggests, ‘multi’ would mean a collection of different market capitalisations. Similarly, ‘flexi’ might suggest a flexible approach with respect to investing in various market capitalisations.
Let us learn about two popular equity fund contenders: Flexi-Cap Funds and Multi-Cap Funds. Here is a brief understanding of their differences and what can be a better fit for your investment goals.
Flexi-Cap vs. Multi-Cap
Mutual funds are a go-to strategy for wealth creation, and equity funds stand out for long-term growth. Among them, Flexi-Cap and Multi-Cap Funds are popular, yet many investors struggle to differentiate between the two. Which one might suit you better? Let us break it down.
Mutual funds India has seen immense growth, with investors keen on understanding different fund structures. When evaluating mutual funds India, it is essential to consider their adaptability to market trends. Many investors in mutual funds India focus on long-term wealth accumulation. The regulatory framework surrounding mutual funds India ensures investor protection. Exploring mutual funds India can help you make a well-informed investment decision.
Both funds invest in stocks but differ in investment flexibility:
1. Multi-Cap Funds
Here, the fund managers need to maintain a fixed allocation across large-cap, mid-cap, and small-cap stocks.
2. Flexi-Cap Funds
The fund managers have the freedom to invest in any market capitalisation. This is done to adapt to market trends.
Flexi-Cap Funds: The Agile Investor
Flexi-Cap Funds can allow fund managers the freedom to invest across large, mid, and small-cap companies. In these funds, there were no set allocation rules. This flexibility can enable them to adjust strategies based on market conditions. Investors can consider it for navigating the market. It can also help them seize the best opportunities as they emerge.
The Securities and Exchange Board of India (SEBI) requires Flexi-Cap Funds to invest a minimum of 65% in equities, ensuring a focus on stock market growth.
The real power of Flexi-Cap Funds can lie in their ability to shift investments based on market condition adaptability, potential higher growth opportunities, and booming sector or industry focus.
With flexi-cap funds investing investors can do the following:
- Increase large-cap exposure during volatility
- Boost mid/small-cap investments in strong markets
- Shift to high-performing sectors
- Hold cash if the market outlook is uncertain
Mutual fund returns can vary based on market conditions and fund strategy. Investors tracking mutual fund returns should analyse historical performance and trends. A well-diversified portfolio can optimise mutual fund returns over time. Market fluctuations impact mutual fund returns, requiring investors to stay updated. Comparing mutual fund returns helps in selecting the right investment strategy.
Multi-Cap Funds: The Balanced Approach
Multi-Cap Funds can also invest across different market caps but with a fixed allocation requirement. It can also ensure diversification. Investors can consider it as a carefully crafted portfolio, since it can provide a mix of securities for balanced growth.
SEBI’s Mandate And The 25/25/25 Rule
Multi-Cap Funds must allocate assets in the following manner:
- 25% to Large-Cap Stocks
- 25% to Mid-Cap Stocks
- 25% to Small-Cap Stocks
- Remaining 25% at the fund manager’s discretion
This can ensure diversification but might limit flexibility.
Less Flexibility
Multi-Cap Funds might not be able to fully capitalise on market trends unlike Flexi-Cap Funds. This is because of their need to maintain specific allocations. They can do this even if a particular segment is underperforming.
Furthermore, monitoring your mutual fund return is essential for assessing investment growth. Each mutual fund return can depend on asset allocation and market movements. Investors can compare mutual fund return trends with benchmark indices for better clarity. A consistent mutual fund return record might indicate strong fund management. Thus, understanding the mutual fund return dynamics can help in making informed investment decisions.
Key Differences in Flexi-Cap vs. Multi-Cap Funds
| Feature | Flexi-Cap Funds | Multi-Cap Funds |
|---|---|---|
| Flexibility | High: Full freedom across market caps. Must invest a minimum of 65% in equities, with no restriction on allocation across large-cap, mid-cap, or small-cap stocks. | Limited: Minimum allocation to each market cap. Must allocate at least 25% each to large-cap, mid-cap, and small-cap stocks, ensuring a balanced exposure across market segments. |
| Investment Mandate | Dynamic: Adapts to market trends. | Balanced: Consistent exposure across market caps. |
| Risk Level | Varies: Managed based on strategy. | Generally higher: Small/Mid-cap exposure increases volatility. |
| Asset Allocation | Flexible: Adjusts as per market outlook. | Constrained: Must stick to allocation rules. |
| Potential Returns | Higher Growth Potential: Can outperform by focusing on winning sectors. | Stable Growth: Consistent but may miss high-growth opportunities. |
Performance Check: Top Funds to Watch
Do you want to see the top performing funds? You must remember that the fund’s past performance doesn’t guarantee future returns!
| Flexi-Cap Funds (1 Year Return) | Multi-Cap Funds (1 Year Return) |
|---|---|
| Parag Parikh Flexi Cap Fund Direct Plan - Growth: 15.39% | SBI Multicap Fund Direct Plan – Growth: 15.30% |
| HDFC Flexi Cap Fund Direct Plan - Growth: 14.48% | ICICI Prudential Multicap Fund Direct Plan – Growth: 9.17% |
| Edelweiss Flexi Cap Fund Direct Plan - Growth: 11.27% | Nippon India Multi Cap Fund Direct Plan - Growth: 8.62% |
| ICICI Prudential Flexicap Fund Direct Plan - Growth: 9.29% | Kotak Multicap Fund Direct Plan – Growth: 4.58% |
| Franklin India Flexi Cap Fund Direct Plan - Growth: 8.98% | HDFC Multi Cap Fund Direct Plan – Growth: 4.52% |
Kuvera: Accessed 20/02/2025
Here is a disclaimer too!
You always need to do your own research and consult a financial adviser before investing.
Key Takeaways
- Flexi-Cap Funds: Flexible, dynamic, high-growth potential, moderate risk.
- Multi-Cap Funds: Balanced, diversified, stable growth, higher risk due to mid/small-cap exposure.
Wrapping Up
Both Flexi-Cap and Multi-Cap Funds offer unique advantages depending on your investment goals, risk appetite, and market outlook. Investors should compare the risk and return potential of different mutual fund types to make informed investment decisions. SEBI regulations ensure that all mutual fund types operate within a structured framework to protect investors and maintain market stability. All you need to do is, stay informed, review fund performance regularly, and consult a financial advisor to ensure your investment strategy aligns with your various financial goals.
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Watch here: Is UPI Killing the Toffee Business?
Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans of Mutual Funds and Fixed Deposits and start investing today.
AREVUK Advisory Services Pvt Ltd | SEBI Registration No. INA200005166
DISCLAIMER: Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investments in securities market are subject to market risks. Read all the related documents carefully before investing. The securities quoted are for illustration only and are not recommendatory.
