Multi-Cap Funds Vs Flexi-Cap Funds – How Are They Different?
- 27 Nov 2024
- By: BlinkX Research Team
Over the past few years, mutual funds have become one of the most popular investment options in India. If you are looking for higher returns in the long term, mutual funds can help you achieve your long-term financial goals. Moreover, with mutual fund investment, you can handle inflation much better. While investing in a mutual fund, you must understand what is flexi cap fund, multicap fund meaning, the difference between a multi-cap vs flexi cap, and more in detail. Keep reading!
What are Multi-Cap Funds?
Multi-Cap Funds focuses on investing equity and equity-related stocks of businesses with a range of market capitalizations. In a multi-cap fund, you can find investments in large-cap, small-cap, and mid-cap companies. While investing in multi-cap funds, you must choose the category that matches your risk tolerance, as every scheme invests in different percentages.
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Table of Content
- What are Multi-Cap Funds?
- What are Flexi-Cap Funds?
- Difference between multi-cap funds and flexi-cap funds
What are Flexi-Cap Funds?
According to the SEBI’s notification, a flexi cap fund is an open-ended, dynamic equity scheme. In Flexi-Cap funds, the investments are made in business with any market capitalization, specifically large, midsize, and small-cap companies. In this case, a minimum of 65% of the scheme's total assets must be invested in equity and equity-related instruments.
Difference between multi-cap funds and flexi-cap funds
Below are the differences between multi-cap vs flexi-cap
| Criteria | Multi-Cap Funds | Flexi-Cap Funds |
| Meaning | Multi-Cap Funds focuses on investing equity and equity-related stocks of businesses with a range of market capitalizations. In a multi-cap fund, you can find investments in large-cap, small-cap, and mid-cap companies. While investing in multi-cap funds, you must choose the category that matches your risk tolerance, as every scheme invests in different percentages. | According to the SEBI’s notification, a flexi cap fund is an open-ended, dynamic equity scheme. In Flexi-Cap funds, the investments is made in business with any market capitalization, specifically large, midsize, and small-cap companies. |
| Equity Exposure | Multi-Cap Funds require a minimum of 75% in Equities. At least 75% of the scheme's total assets must be invested in equity and instruments that relate to equity. | Flexi-Cap Funds require a minimum of 65% in Equities. At least 65% of the scheme's total assets must be allocated to investments in equity and instruments with an equity component. |
| Market Cap Allocation | As per SEBI, multi-cap funds are required to have a minimum 25% allocation of the portfolio in large-cap, mid-cap, and small-cap companies. | They have no mandate. Flexi-Cap Funds are free to invest in any market cap. Flexi-cap funds invest in stocks with a range of capitalizations without having a set percentage allocated. |
| Fund Manager Discretion | The fund manager has the freedom to select stocks and market capitalization. | The fund manager can invest in the stocks with the specified market cap are available. |
| Risks | A Multi-Cap Fund invests in the stocks of large-cap, mid-cap, and small-cap corporations. As a result, these plans have higher risk than large-cap plans, which invest mainly in large corporations. | Flexi-Cap Funds offer a wide range of equity securities, covering all industries and business entities. If offers a strong mix of shares that generates moderate returns. If you can invest for a longer period, it can offer you with flexibility to manage the risk associated with market volatility. |
| Tax Implications | If sold within a year, the gains on your investments are considered short-term capital gains (STCG) and are subject to a 15 percent tax.
If held for more than a year – the gains on your investment are considered as long term capital gains. In such cases, gains up to ₹1 lakh is exempt, and above ₹1 lakh is taxed at 10 percent | If any profit is made within a year - It is termed as short-term and taxed at flat 15%.
If any profit is made in more than one year – it is termed as long-term. Profit made up to 1 lakh is exempt. Profit over 1 lakh is subject to tax at 10% without indexation. |
| Who Should Invest? | If you are willing to take on more risk to achieve greater profits, you can opt for multi-cap funds.
Due to the greater mid-cap and small-cap components, you will need a longer investment period of at least 5-7 years. | If you are looking for a large-cap-focused fund with a tactical allocation to mid-cap and small-cap stocks and invest money into the sector within 5 years. |
| Benefits | With Multi-Cap Funds, large-cap, mid-cap, and small-cap investments are all available. In Multi-Cap Funds, the long-term risk is lower. Also, it has lower risk compared to small-cap and mid-cap funds. | Flexi-Cap Funds lower the risk of market volatility. For the fund manager, it becomes simpler to adjust the exposure to market capitalization. It is simpler to balance the portfolios. Also, it offers the benefit of higher returns with lower risk. |
Conclusion
The above-mentioned information will help you understand the difference between flexi cap vs multi-cap funds. Both offer different advantages depending on the risk tolerance, you can choose any. However, you must always consult an expert or do complete research before investing. You must also check if the investment matches your financial goals and time in which you want to invest.
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