Understanding The Difference Between Multi-Cap And Flexi-Cap Mutual Funds

Multi-Cap Mutual Funds

Multi-Cap funds are diversified equity funds that invest in stocks of companies with different market capitalizations. The investments are made in various quantities in order to achieve the fund's investing goal. Multicap funds invest in equities that offer the finest balance of rapid growth, risk, and value in order to build wealth.

The stock selection is dependent on the investor's investment style, which might be either value or growth. Other quantitative measurements such as the P/E ratio, EPS, and Enterprise value may also be used by the fund manager to verify that the portfolio is made up of only high-quality firms. As a result, if you invest in a multi-cap fund, you will have exposure to companies of various sizes and will be fairly diversified.

Equity Exposure- As per the SEBI guidelines, a minimum of 75% must be allocated to equities

Market Cap Allocation- Each category's minimum investment must be at least 25% of the total corpus that is large, mid, and small-cap stocks.

Fund Manager- The fund managers of India's top multi-cap mutual funds take market circumstances into account when adjusting the percentage of large-cap, small-cap, and mid-cap stocks in their portfolios. They do, however, have restricted options when it comes to stock selection.

Tax- The gains on any multi-cap investment held for more than a year are categorized as taxable Term Capital Gains. Gains of up to Rs 1 lakh are tax-free in a financial year. Gains in excess of Rs 1 lakh are taxed at a rate of 10%.

Returns - During a bull market, these funds beat pure large/mid-cap funds since they are invested in multi-cap corporations. This occurs because the underlying equities in the funds can unlock their potential and take advantage of growth prospects during a bull market.

Who should invest in Multi-Cap Mutual Funds?

Multi-cap schemes are a good option for long-term wealth development for investors who are moderate risk-takers and don't have the time to explore a specific fund in the market. As previously stated, these funds have the ability to outperform large-cap funds, but they underperform mid-cap and small-cap funds.

Suitable for those who are prepared to accept a bigger risk in exchange for higher profits. Because of the greater mid-cap and small-cap components, you'll need a longer investment horizon of at least 5-7 years.

Flexi-Cap Mutual Fund

Equity mutual funds scheme called 'Flexi-cap Fund'. These are open-ended dynamic equity schemes investing across large-cap, mid-cap, and small-cap stocks. A flex-cap fund helps investors to broaden their horizons by investing in firms with varying market capitalizations, reducing risk and volatility. Diversified equities funds or multi-cap funds are other names for them.

Unlike mid-cap and small-cap funds, which invest in equities depending on their market capitalization, Flexi-cap funds can invest in any firm regardless of its market capitalization. The fund manager evaluates the development potential of various businesses, regardless of their size, and allocates funds to various market sectors and businesses.

Equity Exposure- At least 65 percent of Flexi-cap funds' assets must be invested in equity and equity-related investments. There is no limit on how much money these funds can invest in large, mid, or small companies.

Market Cap Allocation- No mandate, can invest freely across market caps.

Fund Manager Preference- In Flexi-cap funds, which firms are good, regardless of their market cap, is more important. The fund manager has freedom while choosing between market capitalization and stocks. So, someone could end up with 100% small, and someone another may end up with 100% large.

Taxability- Any profit made within the first 12 months is considered short-term and is taxed at a fixed rate of 15%. Profits realized beyond 12 months are considered long-term capital gains and are totally exempt up to Rs 1 lakh per year, with the remaining tax at a fixed rate of 10% without indexation.

Who should invest in Flexi-Cap Mutual Funds?

Flexi-Cap Mutual Fund is appropriate for investors seeking long-term capital gain or income and capital gain by investing primarily in an actively managed diversified portfolio of equities and equity-related securities, including derivatives. Investors searching for a large-cap-oriented fund with a tactical allocation to mid-cap and small-cap stocks can consider this product. Invest in the category with a 5-year time horizon. Investors should, however, consult their financial advisers if they have any doubts about whether the product is right for them.

How Flexi-Cap Mutual Fund is different from Multi-cap Mutual funds?

Multi-cap funds must follow the 25-25-25 rule, which requires them to invest 25% in large-cap companies, 25% in mid-cap stocks, and 25% in small-cap stocks, placing minimum investment requirements across market cap sectors. SEBI proposed a new category, "Flexi-Cap Fund," to provide AMCs more freedom. This fund will be positioned as a dynamic equity fund with no limit or bias toward any market cap sector. These funds will continue to invest in the Flexi-cap fund, which provides total flexibility for the fund while investing across market cap categories, under the new category.