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 capitalisations. With the help of multi cap funds, investors get to explore various 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)
Advantages and Disadvantages of Multi-Cap Fund
Advantages of Multi-Cap Funds
- Investments are spread across large, mid, and small-cap stocks, reducing risk.
- A fixed allocation strategy ensures balanced exposure and consistency in returns.
- Suitable for investors looking for a diversified portfolio without actively tracking market trends.
Disadvantages of Multi-Cap Funds
- Fund managers have less flexibility as they must stick to a set allocation.
- May miss out on high-growth opportunities if a particular segment is performing well.
- Finding quality stocks in mid and small-cap categories can be challenging due to lower liquidity and higher risk.
Who Should Invest in Multi-Cap Funds?
Multi-cap funds are suitable for investors who want diversified exposure across different market segments while being comfortable with moderate to high risks. Investors with a long-term outlook may find multi-cap funds beneficial as they have the potential to generate superior returns over time.
Since these funds invest across market segments, they can adapt to market trends and changing conditions. Those who are willing to stay invested for several years can benefit from their growth potential.
Multi-cap funds are actively managed, meaning fund managers decide how to allocate investments based on market conditions. Investors who trust fund managers to make strategic investment decisions may find these funds appealing. Additionally, multi-cap funds can be a good option for individuals planning for long-term financial goals such as retirement, wealth accumulation, or funding major life events.
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 capitalisation 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
Advantages and Disadvantages of Flexi-Cap Fund
Advantages of Flexi-Cap Funds
- Fund managers have the freedom to invest in any market cap segment, helping them seize the best opportunities.
- A mix of large, mid, and small-cap stocks provides both stability and growth potential.
- The ability to shift investments based on market trends can improve returns.
Disadvantages of Flexi-Cap Funds
- Returns depend heavily on the fund manager’s decisions, which may not always be right.
- Higher exposure to small and mid-cap stocks can make the fund riskier and more volatile.
- Frequent buying and selling of stocks can lead to higher costs and tax implications.
Who Should Invest in Flexi-Cap Funds?
Flexi-cap mutual funds can be ideal for investors with a moderate to high-risk appetite who want to diversify their portfolios across different market capitalisations. To benefit from flexi-cap funds, investors should have a long-term investment horizon of at least 5 years.
Investing in small-cap stocks comes with higher volatility, but flexi-cap funds also allocate a portion of their investments to large-cap companies, reducing risk and providing stability. If you are an aggressive investor looking to capitalise on opportunities across different market segments over time, flexi-cap funds may be a suitable option.
Key Differences Between Multi-Cap Funds and Flexi-Cap Funds
| 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 capitalisation. |
| 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 capitalisation. |
| 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 ₹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 ₹1 lakh are exempt from taxes. |
| Investor Compatibility | Multi-cap funds are suitable for investors who want diversified exposure across different market segments while being comfortable with moderate to high risks. | Flexi Cap funds are suitable to those Investors looking for adaptable allocation and the flexibility to adjust to shifting market conditions. |
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 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.
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.
Who should invest in flexi-cap funds?
Flexi-cap funds are suitable for investors with a moderate to high-risk appetite who want flexibility in asset allocation. These funds are ideal for long-term investors looking to balance stability and growth by investing across different market segments.
Are multi-cap funds riskier than flexi-cap funds?
Multi-cap funds can be riskier since they allocate a mandatory portion to mid and small-cap stocks, which are more volatile. Flexi-cap funds, however, offer more stability as they can shift investments towards large-cap stocks during uncertain market conditions.
