Flexi-Cap Vs Multi-Cap Mutual Fund Schemes

Investing has become a part of everyone’s lifestyle. These days, people start a SIP in mutual funds so that every month they save and invest a fixed sum so that in the long run they can achieve a commendable corpus. Starting a SIP can be simple and easy these days thanks to online KYC and investing options. However, the main struggle is in determining which scheme is ideal for your financial goals. Our financial goals never remain the same, they fluctuate with time as we grow old. Similar is the case with our appetite for risk. Although there cannot be one specific scheme to achieve your financial goals, investors may consider diversification across various asset classes like equity, debt, gold, etc.

Under the equity schemes umbrella, there are multiple subcategories that target a specific market cap. Sometimes investors find it difficult in determining whether they should invest their hard earned money in a large cap fund, a mid cap fund, or a small cap fund. While some may find exposing their finances to just one market cap intimidating, such investors can consider diversifying their investment portfolio with either multi-cap funds or flexi cap funds.

There are a few similarities and differences between multi-cap funds and flexi-cap funds that often leave investors confused about which scheme they should invest in.

Today we are discussing these two funds and will also find what factors distinguish one from the other.

What is a Multi-Cap Fund?

A multi cap fund is an equity mutual fund that invests in stocks of mid cap, large cap, and small cap companies. These are diversified equity mutual funds that invest across stocks of different market capitalizations. The capital accumulated by the multi-cap funds is equally spread across all three market caps with a minimum of 25% exposure to large, mid, and small cap stocks. Multi-cap funds target stocks that have growth potential and can offer risk-adjusted returns.

What is a Flexi Cap Fund?

Flexi cap fund is a new product category introduced by SEBI, the regulator of commodities and securities in India. A flexi cap fund is an equity mutual fund scheme that diversifies its investment portfolio across large cap, mid cap, and small cap stocks. A flexi cap fund is ideal for investors who wish to broaden their investment portfolio across stocks spread market capitalizations that can add growth and value. Flexi cap funds offer true diversification as opposed to large cap, mid cap, and small cap funds that predominantly invest in stocks of companies belonging to a specific market capitalization. There are no such investment boundaries for flexi cap funds except for the fact that they must invest a minimum of 65% in equity and equity related instruments.

What is the difference between Multi-Cap Funds and Flexi Cap Funds?

It is quite understandable for some investors to get confused between multi cap and flexi cap funds as both these funds invest across market capitalizations. The fund managers of both these funds do not have to worry about the market cap of a company when scouting for potential stocks for investment. The major difference is the structure of asset allocation. Multi-cap funds must ensure that they invest a minimum of 25% each of their portfolio in all three market caps. That makes 25% in large cap, 25% in small cap and 25% in mid cap stocks. When it comes to flexi cap schemes, there are no such constraints with the only clause being that these funds must have a minimum of 65% exposure to the equity markets. Investors can decide which fund to invest in depending on the kind of exposure they are seeking.

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