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Multicap Vs Flexicap: What Is The Difference?

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In the stock market, long-term investment opportunities are always available. What's needed is the ability to move money around as and when bargains become available. Multi-cap and Flexi-cap mutual fund schemes are specifically designed to take advantage of such changes. Both of these funds offer a vast investment canvas that includes large-cap, mid-cap, and small-cap equities, but there is one key distinction.
In the pre-flexicap period, multi-cap funds were the ideal option for those wishing to diversify their portfolio with equity from companies of various market capitalizations.

 

According to SEBI standards, a multi-cap fund must allocate 25% of its assets to each of large-cap, mid-cap, and small-cap companies.

Each capitalization's asset allocation to equities cannot fall below 25% at any time. The exposure to any capitalization, however, might increase up to 50% depending on market movements, according to SEBI's circular.

Difference between MultiCap & FlexiCap Funds

Difference between MultiCap & FlexiCap Funds

Parameter Flexi-cap funds Multi-cap funds Equity exposure Minimum 65% Minimum 75% Small-cap exposure Not fixed Minimum 25% Flexibility Asset allocation can be changed according to market conditions, making it extremely flexible. Fund managers must ensure that their exposure to all capitalization does not go below 25%. Balanced exposure Flexi-cap funds invest primarily in large-cap funds, with limited exposure to small and mid-cap. To some extent, the funds' exposure to all capitalization is balanced. Suitable Risk-averse investors Aggressive investors

Multicap Funds And Its Benefits
 

Multicap Funds And Its Benefits

Multicap funds now invest at least 25% of their assets in each of the three market segments: large, mid, and small cap. While fund managers still have 25% flexibility to give the portfolio an edge by increasing exposure to a section they anticipate will do well, they lose the opportunity to cut exposure to a segment that is projected to perform poorly, making the fund riskier.

Benefits of Multicap funds

Multi-cap funds provide the flexibility to invest in equities that are best suited to their investment objectives, regardless of market capitalization. Multi-cap funds offer greater diversification across industrial sectors, especially in fast-growing industries where large-cap firms are absent. Multi-cap fund managers dynamically modify their portfolio mix based on market conditions (risks and opportunities), making them appropriate for investors who do not wish to closely monitor the market or make frequent changes to their mutual fund portfolio.

Flexicap Funds And Its Benefits

Flexicap Funds And Its Benefits

Flexicap equity funds, on the other hand, invest at least 65 percent of their entire assets in equity investments with no predetermined boundaries on how much exposure to large, mid, or small-cap segments of the market they should acquire.

Benefits of Flexicap

In Flexi cap, fund managers are free to invest across the market capitalization spectrum.

A well-diversified equity strategy with a "go-anywhere" attitude. Ability to capitalize on opportunities across the market spectrum - regardless of market capitalization, sector, or style. It aims to take advantage of investment possibilities across the board. Due to a diverse portfolio, the risk and return components are rather well balanced.

Multicap Vs Flexicap: What is the difference?

Multicap Vs Flexicap: What is the difference?

The degree to which multi-cap and Flexi-cap funds are exposed to mid-and small-cap stocks is the key distinction. More importantly, depending on market conditions, this disparity can grow fairly large. Flexi-cap funds can reduce their exposure to mid-and small-cap stocks to zero if the fund manager believes it necessary; however, multi-cap funds' exposure to mid-and small-cap stocks can never be less than 25% each.

SEBI's very purpose of creating different mutual fund categories is to provide more clarity to investors and help them make informed investment decisions. Different investors have different risk appetites, investment needs, experience, knowledge, and preferences. Flexicap funds are not better than multicap funds or vice versa. Multicap and flexicap funds are suitable for different types of investors

Read more about: mutual funds
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