What Are Multi-Cap Funds? How It Is Different From Flexi Cap Fund?

A mutual fund is a collection of funds that are typically expertly managed by an investing firm. This means that the money you have deposited in the fund will be invested by the professional fund manager. It enables average individuals to put their money into an endeavour with a successful track record.

If you don't know where to start, mutual funds can be extremely complicated at first. You could find it challenging to choose the right form of a mutual fund if you're new to investing in mutual funds. An excellent place to start is by realising that these funds can be based on the type, performance, duration, and shares.

Numerous mutual fund subcategories fall within the equity-oriented category. Multi-cap and Flexi-cap Funds are two of them. Although both subcategories of funds invest in businesses regardless of market capitalization, the ways in which they can do so differ.

What is a Multi Cap fund?

Multi-Cap Mutual Funds are diversified equity funds that buy shares of businesses with a range of market capitalizations. This equity-oriented fund has the mandate to hold a diversified portfolio across large, mid-cap, and small-cap companies. This means that Multi-Cap Mutual Funds invest in both large-cap funds, which will improve your portfolio's stability, as well as mid-cap and small-cap funds, which will produce incredibly high returns. Multi-Cap funds are required by mutual fund regulations to invest at least 75 per cent of their assets in securities related to equities.

It is necessary for a multi-cap fund to keep its equity allocation regardless of the state of the market. With the stability of large caps and the high-return potential of mid-caps and small-caps, you get the best of all worlds. The fund manager's ability to change the allocation to a certain market capitalization category is limited.

 

 

Multi-cap Vs Flexi Cap funds?

After the revised asset classification standards adopted by the market regulator in September 2020, a new category carved out of large cap fund dubbed as Multi cap funds. These funds invest a minimum of 25% in large-cap, mid-cap, and small-cap equities, respectively. Prior to that, a greater proportion of multi-cap funds' investments were placed in large-cap funds.

The Securities and Exchange Board of India (SEBI) created a new category dubbed "Flexi-cap" to ease the transition for multi-cap investors, requiring fund managers to invest at least 65 per cent of the corpus in equities without any restrictions on investing in large, mid, or small-cap companies.

Flexi-Cap Fund is an open-ended, dynamic equity fund. It makes investments in businesses with any market capitalization. By chasing both value and growth, a flex-cap fund gives its fund management more freedom to investigate investment opportunities across large, mid, and small-cap firms. 

At some level, Flexi-cap and multi-cap funds are similar to each and compete with one another as well. In contrast to multi-cap, where there is a minimum requirement, a Flexi-cap allows the fund manager to choose the exposure in each capitalization. Therefore, an investor can choose a Flexi-cap fund if he wants to offer the fund manager complete discretion. The fund manager in a Flexi-cap can select the exposure in each capitalization.

What to consider before investing?

You can invest in mutual funds by purchasing shares of the actual fund or by purchasing the underlying assets of a fund. Some mutual funds, such as those that only invest in foreign stocks, are particularly specialised. Bonds, currencies, commodities, and other investments are the main emphasis of other funds.

Both the Multi Cap and Flexi Cap sub-categories of equities mutual funds are appropriate for investors who have a minimum investment horizon of five years and who are willing to take on significant risk in order to build wealth.

Investors should assess the sustainability of the underlying investment strategy and the long-term performance of diversified equity funds, which also include multi-cap funds. Investors must think about their risk tolerance and time horizon before investing in any fund. According to Singh, the percentage allocation to any fund should be determined by the investor's risk tolerance. Investors should also consider how a multi-cap fund would affect their portfolio's total risk before investing.