Flexi cap vs Multi cap: What’s the difference?

A variety of benefits are offered by mutual funds in India, including diversification, professional management, liquidity, and tax efficiency. However, mutual funds are not all the same, and there are different categories of funds based on their investment objectives, risk profiles, and asset allocations.

Flexi cap vs Multi cap funds are mutual fund types that invest in the stocks of companies that have different market capitalizations. In this article, we will discuss the differences between flexi cap and multi cap.

What is the Flexi Cap Fund?

Flexi cap funds invest in stocks of different market capitalizations. Depending on the market conditions, flexi cap fund rebalance their portfolios. Unlike other funds, it does not invest solely in one sector, but rather in various companies that belong to different market caps and sectors. Fund managers rebalance portfolios based on market conditions. For instance, the fund manager may remove IT sector stocks if he believes the sector will not perform well in the next year. As a result, flexi cap funds aim to balance risk and reward.

What is the Multi Cap Fund?

In multi cap fund, stocks with different market capitalizations are included, such as large cap, mid cap, and small cap. Multi cap funds invest equally in large cap, mid cap, and small cap companies. In a single fund, investors can invest in stocks with different market capitalizations. To maximize gains on multi cap funds, investors should invest more than five years. It helps investors reduce risk by allowing them to diversify their investments across different market capitalization stocks.  

Difference Between Flexi cap and Multi cap fund

Here is the key difference between flexi cap and multi cap funds:

Parameters	Flexi cap	Multi cap
Meaning	Flexi cap funds allow investors to invest in companies of any size and sector.	Multicap funds invest in companies across market capitalizations.
Characteristic	The fund manager can invest across large cap, mid cap, and small cap companies based on market conditions.	The fund manager invests in large cap, mid cap and small cap evenly.
Investment Strategy	Flexi cap fund follows a dynamic strategy. Fund managers adjust the portfolio based on their perception of the market.	Multi cap fund follows a balanced investment strategy to provide a blend of stability and growth. Thus, allocation to large cap, mid cap and small cap is usually done in a predefined ratio.
Advantages	Flexi Cap Funds allow flexibility in asset allocation.   As a result, they may have the potential to capitalise on market opportunities.	Multi cap funds offer a balanced exposure to different company sizes. This ensures a mix of stability and growth.  They can be suitable for investors looking for diversification across sectors and market caps.

Factors to Consider When Choosing Between Flexi cap and Multi cap fund

It is important to consider several factors when selecting a Multi cap or Flexi cap fund:

• Investment Goals and Risk Tolerance: The funds are suited to different investor profiles. Your goal and risk profile should be taken into account when choosing a fund. For example, you might consider a multi cap fund if you want a balanced approach. If you want to take on more risk in exchange for potentially higher returns, a flexi cap fund may be suitable.

• Timeframe: Over the long term, both multi cap mutual funds and flexi cap funds perform well. However, your time horizon can influence your decision. Since flexi cap funds are capable of adapting, they may perform better during volatile periods.

• Expense Ratios: Over time, lower expense ratios can result in higher gains. Look at the expense ratios and performance of the multi cap fund and flexi cap fund when comparing them.

• Market Conditions: Volatility in the market can affect fund performance. The flexibility of flexi cap funds could provide an advantage during uncertain times.

• Fund Management and Track Record: A fund manager’s expertise is crucial, especially for flexi cap funds whose investment strategy depends on market forecasts.

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Conclusion

Flexi cap funds allow fund managers to optimize asset allocation based on market opportunities. While multi cap funds invest equally across large, mid, and small cap companies, offering a balanced mix of stability and growth. Flexi cap and multi cap funds should be chosen according to investment goals, risk tolerance, timeframe, expense ratios, market conditions, and fund manager expertise. A mutual fund app can simplify the investment and research process for investors exploring these mutual fund options. Apps such as Axis Mutual funds offer users convenient tools for comparing funds, tracking performances, and making informed investment decisions.

Note: Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.

Past performance may or may not be sustained in future.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Market caps are defined as per SEBI regulations as below: a. Large Cap: 1st -100th company in terms of full market capitalization. b. Mid Cap: 101st -250th company in terms of full market capitalization. c. Small Cap: 251st company onwards in terms of full market capitalization.