Category : Investing Guides December 23, 20245 minutes read
Overview
In order to understand multi cap vs flexi cap funds it is necessary to understand their asset allocation. A multi cap fund invests across large, mid, and small cap stocks, while a flexi cap fund is a dynamic equity fund that can invest across market caps with a majority of the funds corpus in equities. The major difference is that a flexi cap fund has flexibility in altering its allocation across market caps based on the fund manager’s outlook, while a multi cap fund has a more balanced allocation. Key benefits of flexi cap funds include flexibility, diversification, and potential risk mitigation, while multi cap funds offer diversification across market caps for more balanced portfolios.
Introduction
Multi cap and flexi cap funds are two popular fund categories that investors often get confused between. Though both offer diversification across market capitalisations, there are some key differences between these fund types. This article will help you understand the meaning of flexi cap mutual funds and multi cap mutual funds. We will also compare multi cap vs flexi cap funds to help you make informed investment decisions.
To effectively compare multi cap vs flexi cap funds it is necessary to understand what is a flexi cap fund. A flexi cap fund is an open-ended dynamic equity fund that can invest across all market capitalisations without any restrictions. SEBI defines flexi cap funds as those diversified equity funds which invest a minimum of 65% into equities without any limitations on market cap allocation. The essence of a flexi cap mutual fund meaning lies in its adaptive investment strategy, not confined by any rigid market cap allocation, making it suitable for investors seeking diverse market exposure.
Key Features of Flexi Cap Funds
- Invest across large, mid, and small cap stocks.
- No restrictions on how much can be allocated to each market cap
- Fund managers can alter allocation based on outlook.
Learn more about what flexi cap funds are.
Benefits of Flexi Cap Funds
The meaning of flexi cap funds is a flexible and dynamic fund. Flexi cap funds have an adaptable investment approach, shifting between market caps based on market conditions and opportunities. Flexi cap funds have the following benefits that make them appealing to investors:
Flexibility
Fund Managers can shift allocations across market caps based on valuations and growth prospects in flexi cap mutual funds. This allows them to tap opportunities across segments.
Diversification
Flexi Cap mutual funds offer diversification across market caps, which may reduce concentration risk. A single segment, like mid or small caps cannot dominate the portfolio.
Read more about portfolio diversification!
Potential Risk Mitigation
Flexi-cap funds invest in high-growth potential mid and small cap stocks while also maintaining relative stability through large caps. Hence, it comes with relatively lower risk compared to mid cap and small cap focused funds and may be less vulnerable to volatility.
Investment Strategy
The fund can follow a value, growth, or blended investment style across market caps. It also provides active fund management to tap market opportunities, unlike passive index funds.
Flexi Cap Fund Returns
Flexi-cap fund returns may be potentially higher compared to large cap funds by allocating to high-growth mid/small caps.
In summary, the flexibility in asset allocation allows flexi cap funds to navigate market cycles and potentially gain from growth stories across market caps. When comparing a multi cap fund vs flexi cap fund, it’s essential to understand each fund’s investment strategy and how it aligns with your financial goals.
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A flexi cap fund is an open-ended equity fund that can invest across all market capitalizations without any restrictions. It must invest at least 65% in equities, allowing fund managers to adjust allocations based on market conditions. Flexi-cap funds offer flexibility, diversification, and potential risk mitigation by balancing large-cap stability with the growth potential of mid and small-cap stocks. They allow active management, providing the opportunity to follow various investment strategies, such as value or growth. This adaptability may result in potentially higher returns compared to large-cap funds, especially in favourable market conditions.
To understand the difference between multi cap vs flexi cap funds, it is necessary to understand what is a multi cap fund. It is an equity fund that invests across large, mid, and small cap stocks. As per SEBI guidelines, multi-cap funds invest at least 25% in large, mid, and small-cap companies each. The balance of 25% can be allocated to any market cap at the fund manager’s discretion.
Features of Multi Cap Funds
- Mandatory diversification across 3 market caps.
- Must invest a minimum of 75% in equities, of which 25% must be in each large, mid and small cap.
- The remaining 25% can be invested freely across segments including international equity, debt and money market instruments.
Learn more about multi-cap funds in India!
Benefits of Multi Cap Funds
In order to grasp the difference in multi cap vs flexi cap, it is necessary to look at the benefits of multi cap funds. As per multi cap fund meaning, multi cap funds aim to balance growth and relative stability for long-term wealth creation at a moderate risk level. This makes them suitable core portfolio holdings for many investors. Here are some of the benefits of investing in multi cap funds:
Diversification and Potential Risk Reduction
By investing across large, mid and small cap companies, multi cap funds provide exposure to stocks across market capitalisation segments. This may potentially reduce concentration risk and balance out volatility associated with any one market cap, sector or asset class.
Read more about the benefits of portfolio diversification!
Portfolio Balance
The mandated minimum 25% allocation to large, mid and small caps ensures that no one market cap segment can dominate the overall portfolio. This prevents aggressive bets only on small or mid caps.
When looking at multi cap fund returns, it’s important to consider their potential to offer a balanced mix of potential stability and growth, derived from investing in a diverse range of company sizes.
Liquidity
Large-cap exposure increases the liquidity of the portfolio. Large cap stocks may potentially be more liquid, which helps manage redemptions.
Multi Cap Fund Returns
Multi-cap funds tend to reflect general market direction and growth since their balanced approach captures broad-based rallies across market caps.
Let’s explore the comparison between multi cap vs flexi cap.
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Multi-cap funds are equity funds that invest across large, mid, and small-cap stocks, with SEBI guidelines requiring at least 25% investment in each segment. The remaining 25% can be allocated at the fund manager’s discretion. These funds offer diversification, balancing growth and potential stability by reducing concentration risk and balancing volatility. With a mandated 25% allocation in each cap segment, multi-cap funds prevent an over-concentration in any one market cap. Their liquidity may be boosted by large-cap exposure, and they tend to reflect overall market growth. Multi-cap funds provide a balanced approach to long-term wealth creation with moderate risk.
Here is a comparison of the major differences between multi cap and flexi cap mutual funds:
| Flexi Cap Funds | Multi Cap Funds | |
| Meaning | Dynamic equity fund that can invest freely across market caps. A minimum of 65% has to be invested in equities. | Equity fund with mandated minimum 25% allocation to large, mid, and small caps each. |
| Asset Allocation | Can alter allocations across market caps while keeping 65% of the overall corpus invested in equities. | Fixed 25% minimum allocation to each market cap. |
| Risk | Very-high risk | Very-high risk |
| Investment Strategy | Flexible asset allocation based on the investment strategy and market conditions. | Balanced allocation across market caps. |
Understanding the difference between multi cap and flexi cap funds is crucial for investors looking to tailor their portfolio to specific risk and return profiles. As seen above, the core difference between flexi cap and multi cap is in terms of investment flexibility and risk profiles. Flexi cap funds carry higher risk due to flexible allocation, while multi caps have more balanced risk due to fixed allocation across segments. The key difference between flexi cap and multi cap funds lies in the flexibility of asset allocation in flexi cap funds, as opposed to the more structured approach in multi cap funds.
- The debate between multi cap vs flexi cap funds stems from their differing investment approaches and asset allocations.
- While both flexi cap and multi cap funds invest across market caps and allow the investor to diversify their investments. However, there are some key differences between the flexi cap and multi cap funds.
- The meaning of flexi cap mutual funds is to offer the investor a dynamic investment strategy. Flexi cap mutual funds engage in dynamic allocation and active management across market caps to tap opportunities. This brings higher potential returns but also greater volatility.
- The meaning of multi cap funds is to provide an investor access to multiple market caps. Multi cap mutual funds take a more balanced approach with capped allocation to each market cap segment. This aims to provide potential growth in line with broader markets at a moderate risk.
- As an investor, align your choice to your risk appetite, investment horizon, and preferences for active or passive management.
