All you need to know about flexi cap funds and multi cap funds

When it comes to investing in the stock market, diversification is a key strategy to mitigate risk and generate stable returns. By spreading your investments across different types of assets, sectors, and market capitalisations, you can potentially achieve a balanced and well-rounded portfolio.
Two popular options for diversification within the equity space are multi-cap funds and flexi-cap funds. These types of mutual funds provide investors with the flexibility to invest in companies of varying market capitalisations, including large-cap, mid-cap, and small-cap stocks.

Table of contents:

1. What are flexi cap funds?
2. What are multi cap funds?
3. Difference between flexi cap funds and multi cap funds
4. Frequently asked questions

What are flexi-cap funds?

Flexi-cap funds are type of mutual funds that invest across various market capitalisations, encompassing equity and equity-related instruments. These funds dynamically manage portfolio risk and returns by investing across market cap.
Unlike funds focused on specific capitalisations such as large-cap, mid-cap, or small-cap (which concentrate on stocks within predetermined ranges), flexi-cap funds are not constrained to investing solely in stocks of a particular capitalisation. Fund managers allocate the fund's assets across companies of diverse market capitalisations. This approach diversifies the portfolio, enabling fund managers to base investment decisions on growth potential rather than company size.

The absence of capitalisation restrictions grants fund managers the flexibility to switch investments from one segment to another based on market movements.
The flexibility to switch between capitalizations is why these funds are commonly referred to as Flexi-cap funds.

What are multi-cap funds?

Multi-cap funds, as the name implies, allocate their portfolio investments to a diversified range of equity and equity-related stocks, encompassing companies with varying market capitalisations. This means that a multi cap fund includes minimum 25% investments in large-cap, small-cap, and mid-cap companies.
When investing in a large, small, or mid-cap fund, the fund managers are limited by the specific market cap definition. In contrast, a multi-cap fund offers a more favourable option for wealth creation, as the fund managers can utilise investment opportunities across the entire market spectrum. Moreover, investors can select a multi-cap scheme that suits their financial requirements.

Difference between multi-cap funds and flexi-cap funds

Multi-cap funds:

• Multi-cap Funds invest in a diversified portfolio of large-cap, mid-cap, and small-cap companies.
• They have a minimum requirement of 75% allocation to equity and equity-related instruments with minimum 25% in large cap, mid cap and small cap.
• Fund managers have discretion in selecting stocks and determining the mix of market capitalisation.
• They can be a suitable option for investors willing to take higher risks with a recommended investment horizon of 5-7 years.
• Benefits of multi-cap funds include diversification across large-cap, mid-cap, and small-cap investments and lower long-term volatility compared to pure mid-cap and small-cap funds.

Flexi-cap funds:

• Flexi-cap funds are open-ended dynamic equity funds that can invest in companies of any market capitalisation.
• Flexi-cap funds are not bound by specific market capitalisation allocations and can invest in companies of any size.
• Benefits of flexi-cap funds include volatility reduction through exposure to various market capitalisations, flexibility for fund managers to adjust allocations, and potential for higher returns with lower risk.

Conclusion:
In conclusion, multi-cap funds and flexi-cap funds are two investment options that provide investors with the potential for diversification across various market capitalisations. Multi-cap funds offer exposure to large-cap, mid-cap, and small-cap companies with a minimum exposure to all 3 market caps, maintaining a diversified portfolio. On the other hand, flexi-cap funds provide the flexibility to invest in companies of any size without a predetermined allocation.

The choice between multi-cap funds and flexi-cap funds depends on an individual's risk tolerance, investment goals, and preferences. Consulting with a financial advisor can help determine the most suitable option based on one's specific circumstances. It is essential to thoroughly understand the fund's objectives, risks, and tax implications before making any investment decisions.

FAQs:

What is the primary difference between flexi cap funds and multi cap funds?

The key difference lies in the investment strategy. flexi cap funds offer the flexibility to invest in companies across market caps based on the fund manager's decision, whereas multi cap funds are required to invest a minimum 25% percentage of their assets in each category, i.e., large-cap, mid-cap, and small-cap.

What are the advantages of investing in flexi cap funds and multi cap funds?

Both these funds offer diversification across market caps, thereby allowing potential exposure to different segments of the market. They provide flexibility to take advantage of opportunities in different market conditions.

What are the risks associated with flexi cap funds and multi cap funds?

As both flexi cap fund and multi cap funds invest across market caps, they carry the risks associated with each segment, such as higher volatility and potential liquidity challenges in mid-cap and small-cap stocks.

How to make a choice between flexi cap funds and multi cap funds?

When choosing between flexi and multi cap fund, you must carefully consider your risk appetite and investment objectives. If you want more flexibility in terms of asset allocation, flexi Cap funds might be suitable. If you prefer a more structured approach with a defined allocation to each market cap, multi cap funds could be a relatively better option.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This document should not be treated as endorsement of the views/opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.