Flexi Cap vs Multi Cap Funds: Choosing the Best Investment

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Mutual Funds have gained immense popularity in India for several reasons in recent years. Many investors are drawn to Mutual Funds primarily because of their attractive returns. These investment instruments help you achieve your long-term wealth goals and act as a wall against the effects of inflation over time.

With Mutual Funds assuming an increasingly pivotal role in your investment portfolio, it is imperative to have a clear understanding of effective investment strategies. This will help you make informed choices and construct a portfolio tailored to your financial aspirations.

Additionally, when discussing long-term investment, Equity mutual funds emerge as a top choice for long-term wealth accumulation and resilience against inflation. These could be of two types: Multi Cap Funds and Flexi Cap Funds. But the question arises: What are these? And how do they differ from one another? Read this blog to find answers to these questions.

Multi Cap Fund Meaning

Multi Cap funds allocate their assets across a diverse portfolio of equity-related stocks and equity across various market capitalisation segments. Consequently, these funds encompass investments in large-cap, mid-cap, and small-cap companies. Opting for this fund can balance risk appetite since each fund within this category allocates its resources differently.

Features of Multi Cap Funds

Some of the key features of Multi Cap funds are as follows:

1. Diverse Portfolio

Multi Cap funds allocate at least 65% to company equity, offering exposure to various market capitalisations. Unlike funds focused solely on specific cap sizes, like oversized or mid-cap funds, Multi Cap funds provide diversity.

2. Risk Management

Multi Cap funds spread risk by including stocks from different-sized companies and sectors. Managers adjust allocations based on market conditions, making them suitable for moderately risk-tolerant investors.

3. Fund Manager's Impact

The fund manager's expertise and strategy influence Multi Cap fund performance. Assess the manager's history and alignment with your goals before investing.

Benefits of Multi Cap Funds

Best Multi Cap offers several benefits, some of the benefits are:

1. Diversification Advantage

Multi Cap funds offer the advantage of diversification by investing in stocks of different sizes and across various industries. This diversification allows investors to spread their risks and potentially enhance their returns.

2. Improved Risk-Adjusted Returns

In contrast to single-cap funds, which may experience fluctuating returns in different market conditions, Multi Cap funds can effectively manage risk-adjusted returns by adjusting their investment allocations to align with prevailing market conditions.

3. Professional Fund Management

The expertise and judgment of fund managers greatly influence the performance of Multi Cap funds. Opting for a fund with an experienced manager means you can benefit from their knowledge and investment skills. This relieves you from the need to closely monitor the market, as the fund manager will automatically adjust the portfolio in response to changing market conditions.

What is the Flexi Cap Fund?

A Flexi Cap mutual fund is an open-ended, adaptable equity scheme that allocates investments across companies of varying market capitalisations, including oversized, midsized, and small-cap businesses. The scheme mandates that at least 65% of its assets be invested in equity-related and equity instruments.

Benefits of a Flexi Cap Fund

The best Flexicap fund offers several benefits. They are:

1. Enhanced Diversification

When contemplating investments across various market capitalisations, diversification becomes of utmost importance. These funds invest across different sectors, effectively reducing risk.

2. Risk Management

It is important to note that small-cap stocks often experience more significant declines during such times. In contrast, a diversified portfolio acts as a safety net, offering protection against market turbulence and helping to reduce the associated risks. Thus, you should aim for diversification to manage the risk.

3. Navigating Market Cycles

While market roller coasters are inevitable, as investors, you are responsible for securing your positions during turbulent times. The dynamic nature of the Flexi Cap funds equips them to navigate through various market cycles effectively.

Quick Glance: Multi Cap vs Flexi Cap Funds

Multi Cap and Flexi Cap funds are both types of equity funds that diversify your investments across different market capitalisations. However, they differ in various parameters. Here is a detailed overview:

Parameters	Multi Cap Funds	Flexi Cap Funds
Equity Exposure	By regulatory requirements, the entity must allocate at least 75% of its overall assets to investments in equities, distributed as follows: A minimum of 25% in large-cap corporations. A minimum of 25% in mid-cap corporations. A minimum of 25% in small-cap corporations.	Flexi Cap funds must allocate at least 65% of their assets to equity and related investments. There are no constraints on the extent of investment these funds can make in businesses of varying sizes, including small, mid-sized, or large enterprises.
Fund Manager’s Roles	The fund managers of India's top Multi Cap mutual funds consider market conditions when adjusting their portfolios' allocation of small-cap, mid-cap, and large-cap stocks. Nevertheless, their choices for stock selection are somewhat restricted.	Identifying investment-worth companies is the primary goal. The fund managers have the freedom to choose which stocks to invest in and how much they should. This means one person's investments could be all in small companies, while another in big companies.
Tax	Long-term capital gains refer to the taxable profits earned from Multi Cap investments held for a duration exceeding one year. Within a fiscal year, approximately Rs. 1 lakh gains are exempted from taxation. However, gains exceeding Rs. 1 lakh are subject to a 10% tax rate.	The money you make from investments in the first year is called short-term gains, and you must pay a 15% tax. But if you make money by holding onto your investments for more than a year, it's called long-term gains. You don't have to pay any tax on the first Rs. 1 lakh you make in long-term gains each year. However, if you make more than Rs. 1 lakh, you will have to pay a 10% tax on the extra amount, and this tax rate can be adjusted for inflation using indexation.
Ideal Audience	Investors with a conservative risk tolerance.	Investors who are seeking sustained market capital appreciation over the long term.

Frequently Asked Questions

Q1. Can I Invest in a Flexi Cap Fund Long-Term?

You can invest in Flexi Cap funds for the long term as they offer flexibility to adapt to changing market conditions.

Q2. How can I Decide Which Fund Type is Right for me?

To choose between Multi Cap and Flexi Cap funds, assess your risk tolerance, goals, and market outlook for a better fit.

Q3. Which Fund Type Typically has Lower Expense Ratios?

Generally, Multi Cap funds tend to have lower expense ratios than Flexi Cap funds, which can affect your overall returns.

Q4. Are Flexi Cap Funds Riskier Due to Their Flexibility?

Flexi Cap funds may carry more risk due to their ability to invest across market caps, potentially experiencing volatility during market shifts.

Multi Cap Funds vs Flexi Cap Funds – Exploring the Key Differences