Multi Cap and Flexi Cap Mutual Funds: How Are They Different?

We all are well aware of the perils of inflation that surround the Indian financial market. Now, the real question is, how can you possibly beat these rising price levels? The answer lies within your investments. And if you’re looking to build wealth for the long-term, equity-oriented mutual funds could become an essential part of your portfolio diversification process.

Table of Content

• What is a Multi Cap Fund?
• What is a Flexi Cap Fund?
• Benefits of Investing in Multi Cap Funds
• Benefits of Investing in Flexi Cap Funds
• How Are These Two Funds Different?
• What is a SIP? What is its Role in Equity Investing?

When exploring equity-oriented investment options, investors often come across various sub-categories of mutual funds. Amongst them are Multi cap and Flexi cap funds. Even though both these funds invest across companies of varying market capitalisations, the manner in which they operate are different.

So, what is it that makes these two mutual funds different, and which option could take you on the path of long-term financial planning? Let’s find out.

What is a Multi Cap Fund?

First time investors often come up with questions like what is a Multi cap fund and how does it work? A Multi cap fund is a mutual fund that invests in equity-related instruments of companies across large-cap, mid-cap, and small-cap segments.

As per the Securities and Exchange Board of India (SEBI), Multi cap funds are mandated to invest a minimum of 25% of the funds in the stocks of companies across each market capitalization. These funds are aimed at generating wealth in the long term by diversifying your portfolio across market sectors to strike a balance between risk and reward.

What is a Flexi Cap Fund?

When seeking a more dynamic equity option, investors also frequently search for what is a Flexi cap fund. A Flexi cap fund is an equity mutual fund that invests in various market caps depending on the prevailing market conditions or investment opportunities.

According to SEBI guidelines, Flexi cap funds are required to invest at least 65% in equity and equity-related instruments. What’s important to note is that there is no minimum threshold for investments in large, mid, and small cap, and the exposure can be managed dynamically.

Benefits of Investing in Multi Cap Funds

Understanding the benefits of Multi cap funds can help you assess whether these mutual funds align with your financial goals. Here are some of the advantages of investing in one:

• Diversified Exposure: The requirement to invest a minimum amount in each market capitalisation offers investors a balanced exposure to different market sectors.
• Balanced Risk: By diversifying portfolios across companies and sectors, investors are encouraged to spread risk out and secure potential stability in the long term. 
• Long-Term Wealth Creation: Instead of being limited to one market capitalisation, investors can potentially benefit from returns across various market caps.
• Disciplined Structure: Limited allocation flexibility ensures consistency in portfolio composition.

Benefits of Investing in Flexi Cap Funds

The benefits of Flexi cap funds primarily come from their adaptability and open-ended equity scheme. Here are the advantages of investing in them:

• High Flexibility: Asset allocation can be adjusted based on market opportunities, offering investors high flexibility in portfolio diversification.
• Dynamic Risk Management: Ability to reduce exposure to volatile segments during downturns.
• Active Fund Management: Flexibility to adapt to changing market conditions and grow potential for higher returns.
• Opportunity-Driven Returns: Capital can be deployed where growth prospects appear strongest.

Suggested Read: Difference between Mutual Funds Vs Stocks

How Are These Two Funds Different?

The core difference between Multi cap and Flexi cap funds stems from their allocation freedom. Multi cap funds follow a predefined structure, ensuring equal exposure across market segments. Flexi cap funds, on the other hand, offer complete discretion to the fund manager as to when and where to invest.

If you look at this from an investor’s perspective, Multi cap funds provide predictability and a well-rounded portfolio diversification, while Flexi cap funds offer flexibility and active management. Whichever type of mutual fund scheme you choose, ensure that it aligns well with your risk profile, investment objectives, and financial goals you wish to meet. 

Suggested Read: Understanding How Mutual Funds Work: A Complete Guide

What is a SIP? What is its Role in Equity Investing?

A Systematic Investment Plan (SIP) is a facility offered by mutual funds to investors that enables them to invest in a more cohesive manner. Systematic investments come with attractive features such as investing small amounts regularly, reducing the impact of market volatility, and building wealth gradually over time. Regardless of the mutual fund category you opt for, investing through a SIP can help bring direction and consistency to your portfolio.

Multi cap and flexi cap funds both serve important roles in equity investing. Investors who prefer a structured diversification and steady exposure may lean towards Multi cap funds. And those who value flexibility and market-driven allocation may find Flexi cap funds more suitable.

At Muthoot Finance, investors can access professional guidance to understand equity-oriented mutual funds better and choose funds that align with their financial aspirations. Visit your nearest branch to explore suitable solutions for your investment journey.