What is a Multi-Cap fund?
A multi-cap fund is a type of mutual fund which invests in large cap, mid cap, small cap companies. The percentage of investment allocation should be equal across all three market capitalizations. With the help of multi cap funds, investors get to dabble in varied companies, sectors among all the three market caps. Such diversified equity allocation aids the investor to get the most of their investment by mitigating risk and balancing out volatility. That said, being a fund that caters to all three market caps, multi cap funds must invest at least 75% in equity and equity related instruments. The benchmark that is applicable for a flexi-cap fund and tries to outperform is the NIFTY 500 Multi Cap 50:25:25 Index.
Here are few Multi-Cap funds that are popular among retail investors in no particular order:
- Quant Active Fund (Direct Growth)
- Mahindra Manulife Multi Cap Badhat Yojana (Growth)
- Nippon India Multi Cap Fund (Direct Growth)
- ICICI Prudential Multicap Fund (Direct Plan-Growth)
- Baroda BNP Paribas Multi Cap Fund (Direct-Growth)
What is a flexi-cap fund?
A flexi-cap fund is a type of mutual fund which invests in large cap, mid cap, small cap companies. The percentage of investment allocation is not predefined based on the market capitalization of the companies. With flexi-cap funds, the fund manager has the flexibility to invest money across different companies and different sectors. One could say that flexi cap is more of an extension of how multi caps function given their increased popularity over the past few years among investors. They are the second largest category amongst equity based mutual funds. The benchmark that is applicable for a flexi-cap fund and tries to outperform is the NIFTY 500 Total Return Index.
Here are few flexi-cap funds that are popular among retail investors in no particular order:
- Parag Parikh Flexi Cap Fund – Direct Growth
- PGIM Flexi Cap Fund – Direct Growth
- Quant Flexi Cap Fund – Direct Growth
- Canara Robeco Flexi Cap Fund – Direct Growth
- UTI Flexi Cap Fund – Direct Growth
Few noticeable differences between Multi-Cap funds and Flexi-Cap funds are:
| Investment factor | Multi Cap Fund | Flexi Cap Fund |
| Meaning | Equity funds that diversify their investment in different markets like large cap, mid cap, and small cap. | An Open-ended, dynamic fund which can diversify its investment in a company across any market capitalization. |
| Asset allocation | Multi Cap funds have to at least allocated 25% each in large cap, middle cap, small cap companies | There are no restrictions in Flexi-Cap funds in terms of allocation and are free to invest across any market capitalization. |
| Equity Exposure | The equity exposure in multi cap companies should be at least 75%, be it in equities or equity related instruments. | At least a minimum of 65% investment allocation should be allocated towards equities and equity related instruments |
| Tax Implications | LTCG stands at 10% for investments that are sold after holding them for more than a year. If investments are sold within a year then they attract STCG of 15%. Gains up to Rs. 1 lakh are exempt from taxes. | If investments are sold within a year then they attract STCG of 15%. LTCG stands at 10% for investments that are sold after holding them for more than a year. Investment gains up to Rs. 1 lakh are exempt from taxes. |
| Investor Compatibility | Multi Cap funds are most suited to risk tolerant investors as the funds are diversified with a significant portion is risk prone mid cap and small cap stocks. | Flexi Cap funds are suitable to those investors who have less risk appetite as such funds have a major portion of their investments allocated to large cap companies. |
Conclusion:
So, if you are looking to diversify your mutual funds’ investment there hasn’t been a better time like now to scour the multi-cap funds and flexi-cap funds and pick from among them given their long list of benefits. Open a Demat account today with Angel one to start exploring the benefits of multi-cap and flexi-cap funds. Please check out our knowledge center to know more such interesting things about investments.
FAQs
What is a Multi-Cap fund?
A Multi-Cap fund is a type of mutual fund that invests in large-cap, mid-cap, and small-cap companies with an equal percentage allocation across all three market capitalisations.
What is a Flexi-Cap fund?
A Flexi-Cap fund is a type of mutual fund that invests in large-cap, mid-cap, and small-cap companies without a predefined percentage allocation, allowing the fund manager to decide the distribution based on market conditions.
How much must Multi-Cap funds invest in equities?
Multi-Cap funds must invest at least 75% in equity and equity-related instruments.
How much must Flexi-Cap funds invest in equities?
Flexi-Cap funds must invest at least 65% in equity and equity-related instruments.
What is the main difference between Multi-Cap and Flexi-Cap funds?
The main difference is in asset allocation: Multi-Cap funds must allocate at least 25% each to large-cap, mid-cap, and small-cap companies, whereas Flexi-Cap funds have no such allocation restrictions and can invest freely across any market capitalisation.
Which investors are best suited for Multi-Cap funds?
Multi-Cap funds are best suited for risk-tolerant investors who are comfortable with a diversified portfolio that includes a significant portion of mid-cap and small-cap stocks.
Which investors are best suited for Flexi-Cap funds?
Flexi-Cap funds are suitable for investors with a lower risk appetite, as these funds tend to have a major portion of their investments in large-cap companies.
What are the tax implications for Multi-Cap and Flexi-Cap funds?
Both Multi-Cap and Flexi-Cap funds attract a Long-Term Capital Gains (LTCG) tax of 10% on gains exceeding Rs. 1 lakh if sold after one year, and a Short-Term Capital Gains (STCG) tax of 15% if sold within a year.
