Flexi Cap or Multi Cap? Which one’s for you?

We discuss two categories of mutual funds: Flexi Cap Fund and Multi-Cap Funds. Both allow investors to diversify their investments, but distinctly.

The News

In the first six months of the current financial year, Multi Cap Mutual Funds have witnessed a net inflow of ₹23146 crores, while Flexi Cap Mutual Funds have seen ₹18167 crores inflows during the same period.

These two categories receive the highest inflows after thematic funds. Let’s start with the Flexi Cap fund.

Flexi Cap Mutual Fund

A Flexi Cap fund invests in companies across all market capitalization–large, mid, and small. Here, the fund manager has complete discretion to invest any proportion of the fund in any market cap, based on market opportunities. For instance, a fund manager might allocate most funds to large-cap stocks only and a smaller portion to mid and small-cap stocks.

You see, diversification across market caps might take the back seat here, as fund managers might take concentrated bets, investing a significant proportion into either large, mid, or small cap.

But what if you want to invest in stocks of all three market caps simultaneously?
Well, it was not later than September 2020 that the SEBI realized that it needed to create a category where an investor could get exposure to companies of all market caps. That’s when the Multi Cap category came into play.

Multi Cap Mutual Fund

Just like a Flexi Cap fund, these funds also invest your money in companies with different market capitalizations–large, mid, and small cap, but a minimum of 25% in each.

The remaining 25% can be allocated according to the fund manager’s discretion, allowing them to adapt to market conditions and opportunities. This mandatory diversification ensures balanced exposure across the different market caps and leaves a limited scope of concentrated bets.

What should you choose

If you prefer the fund manager to decide how to allocate most of the funds, a Flexi Cap fund might be the right choice. On the other hand, if you want a well-diversified investment across different market caps, a Multi Cap fund would be more suitable.

When it comes to returns, since both funds invest in equities, there may be times when one outperforms the other.