Difference Between Flexicap vs Multicap Funds

The main difference between flexi-cap and multi-cap funds is their investment approach and flexibility. The flexibility of flexi-cap funds allows fund managers to allocate funds across a range of market capitalisations, including large, mid, and small. This flexibility allows the fund manager to adapt the portfolio in response to changing market conditions and capitalise on potential opportunities. Multi-cap funds follow a structured mandate, requiring simultaneous investments in large-cap, mid-cap, and small-cap stocks. This approach ensures a diversified portfolio, providing exposure to various market segments. In this article, let’s understand flexi-cap and multi-cap funds in detail. 

What is a Flexi-Cap Fund? 

According to SEBI, a flexi cap fund is an open-ended, dynamic equity scheme. It invests across companies of all market capitalisations, including large-cap, mid-cap, and small-cap businesses. Furthermore, there must be a minimum of 65% of the scheme's assets invested in equity and equity-related instruments. 

What is a Multi-Cap Fund? 

Multi cap fund can be defined as an open-ended equity fund that holds a portfolio of companies across mid-cap, large-cap, and small-cap sizes. According to SEBI's regulations, these funds are required to invest at least 75% of their total assets in equities in the following ratio: 

• Minimum 25% in mid-cap companies 
• Minimum 25% in small-cap companies 
• Minimum 25% in large-cap companies 

Regardless of market dynamics, this equity allocation should be maintained. Due to this allocation, investors can benefit from the stability of large-cap companies as well as the growth potential of small and mid-cap companies.  

Difference Between Flexi-Cap and Multi-Cap Fund 

The following is the main difference between multi-cap and flexi-cap: 

Particulars	Multi-Cap	Flexi-Cap
Meaning	Multi-cap funds have a mandate to maintain a diversified portfolio of large, mid-cap, and small-cap corporations.	Flexi-cap funds are open-ended, dynamic equity schemes that invest in stocks of companies across all market capitalisations without being required to allocate a fixed percentage to any one category.
Equity Exposure	At least 75% of the scheme's total assets must be invested in equity and equity-related instruments.	A flexi-cap Fund must invest at least 65% of its assets in equities.
Market Cap Allocation	SEBI requires multi-cap funds to have a minimum 25% allocation to large-cap, mid-cap, and small-cap companies.	Flexi-cap funds have no mandate, so they can invest in any market cap. A flexi-cap fund invests in stocks of companies with a range of capitalisations without allocating a specific percentage.
Risks	Multi-cap funds invest in the stocks of large, mid, and small-sized companies. These funds may be riskier than large-cap funds, which invest primarily in large companies.	A flexi-cap fund provides exposure to a wide variety of equity securities across a variety of industries and businesses. As a result, a portfolio with a well-diversified selection of stocks may produce moderate gains. In addition, this fund may provide flexibility in managing volatility risk if held for a long period of time.
Who Should Invest	A multi-cap fund is suitable for investors who are willing to take on reasonable risks to earn potential gains. It is recommended to invest over a longer period of time, typically between 5-7 years, as mid- and small-cap components are more present in these funds.	Investors seeking a large-cap-focused fund with a tactical allocation to mid-cap and small-cap stocks may be interested in flexi-cap funds.
Benefits	Multi-cap funds invest in a diversified mix of large-cap, mid-cap, and small-cap stocks, providing exposure to various market segments. Overall, multi-cap funds offer a more balanced and diversified investment choice with reduced risk.	Flexi-cap funds come with various benefits. They help reduce the impact of market volatility, making them less risky. Moreover, flexi-cap funds allow fund managers to easily adjust the mix of large-cap, mid-cap, and small-cap stocks in the portfolio, and they give investors a simpler way to balance their investments.

Using a mutual fund app can make the process easier by allowing you to compare funds, check performance, and invest seamlessly, all in one place. 

Conclusion 

It depends on investors' preferences and risk tolerance whether to invest in flexi-cap or multi-cap funds. Due to their flexibility, flexi-cap funds are suitable for those seeking dynamic allocations based on market conditions. Asset management companies like Axis MF offer well-structured options in both flexi-cap and multi-cap categories, helping investors align their portfolios with market opportunities. While multi-cap funds follow a structured approach, maintaining a diversified portfolio of large, mid, and small-cap stocks makes them suitable for creating a portfolio with stability across various markets. When selecting between these fund types, investors should consider their risk appetite, investment horizon, and diversification.