Difference Between Flexi-cap and Multi-cap Mutual Funds
Flexi cap funds and multicap funds are two types of mutual funds that are preferred by investors to use un-built diversification in them. While both of them invest in equities, bonds, and other securities, they differ in their investment strategy and the % allocation to the securities they invest in.
Multi-cap and flexi-cap funds are both equity funds that invest in companies of different market capitalizations. However, there are some key differences between the two categories.
Multi-cap funds
Multi-cap funds are required to invest a minimum of 25% in each of the three market capitalizations: large-cap, mid-cap, and small-cap. This means that they have a more balanced investment strategy, with exposure to both well-established companies and companies with higher growth potential.
They are relatively less risky compared to a pure mid cap or a small cap fund and are suitable for not-so-aggressive investors
Flexi-cap funds
Flexi-cap funds, on the other hand, have no such restrictions. They are free to invest in companies of any market capitalization, in any proportion. This gives the fund manager more flexibility to adjust the portfolio based on market conditions and investment objectives.
Only requirement in flexi-cap funds is that they need to invest at least 65% in equity funds without restriction of market cap. This provides more flexibility to the Fund Manager of these schemes.
Table – Summary of the key differences between multi-cap and flexi-cap funds:
| Feature | Multi-cap fund | Flexi-cap fund |
|---|---|---|
| Market capitalization restrictions | Minimum 25% in large-cap, mid-cap, and small-cap | None |
| Investment strategy | Balanced | Flexible ( >= 65% in equities) |
| Risk-return profile | Moderate | Moderate-high |
| Fund manager flexibility | Less flexibility | More Flexibility |
The major difference between multi and flexi-cap funds is of the degree to which they invest in mid and small-caps. Please note that this difference can become quite large depending on market conditions. Flexi-cap funds can reduce their exposure to mid or small caps right down to zero, if the fund manager finds it necessary; however, in the case of multi-cap funds, this exposure can never go below 25 percent each for mid and small-cap stocks.
Flexi cap funds are more focused on capital appreciation, while multicap funds are more focused on income generation.
Additionally, flexi cap funds typically have a higher risk profile than multicap funds.
Higher exposure to mid and small cap stocks can increase the aggressiveness of Multicap funds. So, during market downturn there is a possibility that they may fall more compared to say Flexi Cap funds which are go anywhere funds and have no limitation in terms of market cap exposure.
Which type of fund is right for you?
The best type of fund for you will depend on your individual investment goals and risk tolerance.
If you are looking for a fund that offers a good balance of risk and return, with exposure to companies of all sizes, then a multi-cap fund may be a good option for you.
If you are more comfortable with higher risk in exchange for the potential for higher returns, then a flexi-cap fund may be a better choice.
It is important to note that both multi-cap and flexi-cap funds are equity funds, which means that they are subject to market volatility. Therefore, it is important to invest for a long-term horizon and to diversify your portfolio by investing in different types of assets.
Here are some additional things to consider when choosing between a multi-cap and flexi-cap fund:
- Investment goals: What are you hoping to achieve with your investment? If you are saving for retirement, you may want to choose a fund with a longer-term horizon. If you are saving for a shorter-term goal, such as a down payment on a house, you may want to choose a fund with a shorter-term horizon.
- Risk tolerance: How much risk are you comfortable with? If you are new to investing, you may want to start with a fund that has a lower risk profile. As you become more comfortable with investing, you can gradually increase your exposure to riskier assets.
- Past performance: It is important to look at a fund’s past performance before investing. However, it is important to remember that past performance is not indicative of future results.
- Expense ratio: The expense ratio is the percentage of a fund’s assets that are used to cover the costs of managing the fund. A lower expense ratio means that more of your investment money is going towards investments.
To know the past performance of Mutual Funds, you can visit AMFI site. It is always a good idea to consult with a financial advisor before making any investment decisions. They can help you assess your individual needs and goals, and choose the right type of fund for you.