Difference Between Multi-Cap and Flexi-Cap Mutual Funds

Published on September 16, 2022 | 5 min read

Difference Between Multi-Cap and Flexi-Cap Mutual Funds

Key Takeaways

Multi-cap mutual funds invest the pooled funds in equity and equity-related assets of companies belonging to large, mid, and small market cap.
Flexi-cap mutual funds are dynamic equity schemes that invest in equity belonging to businesses with different market capitalisation.
In multi-cap funds, fund managers are mandated to allocate a minimum of 25% of the total assets to each market capitalisation segment, i.e., large-, mid-, and small-cap stocks.
In flexi-cap funds, fund managers are allowed to dynamically change their allocation across large-, mid-, and small-cap companies as per market conditions and valuations. However, flexi-cap funds are mandated to invest at least 65% in the equity market.

When buying mutual funds, investors are often confused between multi-cap and flexi-cap mutual funds, thinking they are one and the same. But both investments have different characteristics, mandates and allocation guidelines.

Let’s explore both multi-cap and flexi-cap funds, how they work, and the difference between them.

What Are Multi-Cap Mutual Funds?

Multi-cap mutual funds are equity mutual funds that invest in companies belonging to different market capitalisations, i.e large, mid, and small. SEBI (Securities and Exchange Board of India) mandates that these funds invest at least 75% of their total assets in equity, with a minimum of 25% allocated to each category, and the remaining 25% can be invested in other permitted instruments, as per fund manager’s discretion.

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Benefits of Investing in Multi-Cap Mutual Funds

The following are the benefits of investing in multi-cap mutual funds.

Diversified Exposure

Multi-cap mutual funds provide exposure to large-cap, mid-cap and small-cap companies due to mandatory allocation in each category. This also reduces concentration risk in one particular market segment.

Growth and Stability

Multi-cap funds invest in large-cap stocks that offer stability along with mid- and small-cap companies that carry growth potential. This enables a balanced approach to wealth creation.

High Return Potential

Multi-cap funds can potentially offer high growth through mandated exposure to small- and mid-cap stocks.

What Are Flexi-Cap Mutual Funds?

Flexi-cap mutual funds invest pooled money in companies across market capitalisations, with no minimum or mandated allocation limits. SEBI mandates flexi-cap funds to invest at least 65% of their total assets in equity and equity-related investments.

In flexi-cap funds, fund managers are allowed to dynamically change their allocation to a particular market capitalisation as per market conditions.

Benefits of Investing in Flexi-Cap Mutual Funds

The following are the benefits of investing in flexi-cap mutual funds.

Dynamic Allocation

In flexi-cap, fund managers can dynamically change their asset allocation across market caps based on prevailing market conditions.

Complete Diversification

Flexi-cap mutual funds invest across large, mid, and small caps, reducing market-cap concentration risk.

Professional Expertise

Flexi-cap funds are managed by professional fund managers with a good track record, who usually change asset allocation based on business cycles and market conditions.

Difference Between Multi-cap and Flexi-cap Mutual Funds

The following is a table explaining the difference between multi-cap and flexi-cap mutual funds.

Feature	Multi-Cap Funds	Flexi-Cap Funds
Minimum Equity as per SEBI	At least 75% of total assets in equity and equity-related instruments.	At least 65% of total assets in equity and equity-related instruments.
Allocation Mandate	A minimum allocation of 25% of total assets in each of large-, mid-, and small-cap stocks.	No fixed or minimum asset allocation limits.
Fund Manager Freedom	Mandatory minimum 25% allocation for each market segment out of total 75% of the portfolio.	Fund managers are allowed to dynamically change the allocation.
Risk Profile	Risk can be influenced by the mandatory exposure to mid- and small-cap stocks.	Risk can vary depending on the fund's market-cap allocation.

Multi-cap mutual funds are mandated to invest at least 25% of their total assets in each of three market segments, i.e., large cap, mid cap and small cap. Flexi-cap funds can change their market segment allocation dynamically based on market conditions.

The two categories therefore differ mainly in their allocation mandates. Investors must consider their risk tolerance, return expectations, and financial goals when choosing between them.

FAQs

What are multi-cap mutual funds?

Multi-cap mutual funds are equity mutual funds that invest in companies belonging to different market capitalisations, i.e large, mid, and small, with a mandatory minimum 25% allocation to each market segment.

What are flexi-cap mutual funds?

Flexi-cap mutual funds are funds that invest pooled money in companies belonging to various market capitalisations and are allowed to change their allocation dynamically as per market conditions.

What is the difference between multi-cap and flexi-cap mutual funds?

Multi-cap funds follow minimum allocation rules across large-, mid-, and small-cap stocks, while flexi-cap funds can change their allocation based on market conditions.

Are multi-cap mutual funds riskier than flexi-cap funds?

The risk level of both fund categories depends on their portfolio composition. Multi-cap funds have mandatory exposure to mid- and small-cap stocks, while flexi-cap funds have greater flexibility in changing their market-cap allocation.

Can I invest in both multi-cap and flexi-cap mutual funds?

Yes, you can invest in both multi-cap and flexi-cap mutual funds provided that you check whether their portfolios overlap and whether they fit your overall investment strategy.

About Author

Mariyam Sara

Sub-Editor

holds an MBA in Finance and is a true Finance Fanatic. She writes extensively on all things finance whether it’s stock trading, personal finance, or insurance, chances are she’s covered it. When she’s not writing, she’s busy pursuing NISM certifications, experimenting with new baking recipes.