Multi-cap vs Flexi-cap Funds: Where Should You Invest?

Does investing in mutual funds seem profitable to you? Undoubtedly, mutual funds have become quite popular with individuals desiring to grow their wealth. So, if you wish to accomplish your financial goals, it's time you understand the ins and outs.

On that note, multi-cap and flexi-cap funds come into the frame. These two funds stand out as versatile solutions for investors. Both these funds come with the flexibility to invest around different market capitalisations. However, these two funds may differ from one another depending on the key strategies. So, this post helps you understand the differences between multi-cap and flexi-cap funds. One who wishes to make a better investment decision can consider reading this post. 

An Introduction to Multi-Cap Fund – Definition and Benefits

So, multi-cap funds are mutual funds for companies to invest with market capitalisations. So, you can consider a wide range of funds – from large-cap and mid-cap to small-cap stocks. Allocating every segment depends on the fund manager's choice and market conditions. 

Notably, the prime objective of such funds is to offer diversification around market segments. Besides, it reduces risks while improving returns in the long term. Those who have a balanced risk appetite can consider this type of fund. The following are the key features:

• Excellent Portfolio – Multi-cap funds invest a whopping 75% to the equity. So, it offers exposure to different market capitalisations. This type of fund offers diversity when compared to funds that solely focus on cap sizes.
• Manage Risks Effectively – Multi-cap funds can help you manage risks from different-sized companies. One can adjust allocations depending on the market condition. So, this type of fund is suitable for risk-tolerant investors.
• Impact of Fund Manager – Skills and strategies implemented by the fund manager can influence the overall performance of the Multi Cap fund. So, one can assess the manager's history and goals before making the investment.

The prime benefits of the Multi-cap include these:

• Diversification: It offers the advantage of diversifying the chance of investing in stocks of various sizes. This lets investors become more risk-tolerant and improve their returns accordingly.
• Managing funds excellently: Fund managers' expertise can impact Multi Cap funds' performance. An experienced manager can use their knowledge to monitor the market and offer benefits as per the changing market conditions.

Outlining What's Flexi Cap Fund – Meaning and Other Details

It's an open-ended and dynamic equity scheme, as per the notification of the SEBl. So, it makes investments irrespective of market capitalisation. It may include midsize or large (or sometimes small) cap companies. Enlisted below are the top benefits of Flexicap funds:

• Improved Diversification – Diversification becomes a crucial consideration when it's about investment around market capitalisations. On that note, such funds help you invest across different sectors. Notably, it can also reduce your risk.
• Managing Risk – There's no denying the fact that small-cap stocks may experience significant declines during crucial times. The diversified portfolio may act as a safety net. It can closely offer the required protection against market turbulence. At the same time, it reduces the risks. So, you must ensure diversification to manage your risk.
• Helps you Navigate the Market Cycle – Market fluctuations are unavoidable when it comes to the stock market. So, investors must keep themselves protected during such crucial times. Note that Flexi Cap funds are adaptable. So you can navigate through different market cycles.

How do Multi Cap Funds Work?
As per regulations, mutual funds must be specific in investment approaches. So, each equity mutual fund invests in the stocks of companies. The large-cap fund invests in stocks of the top hundred companies depending on the market capitalisation. So, small-cap funds may invest in companies ranking below 250. Nonetheless, a multi-cap is one such category that does not have any defined structure on the sector or size of companies invested. 

So, such funds invest in large-cap or mid-cap (at times small-cap stocks). The proportion of stocks might vary from one to another. Overall, it depends on the manager. They evaluate the condition of the market and adjust the proportion accordingly. Suppose the economy is expanding. In such cases, the manager may opt for a higher exposure in the mid-cap or small-cap stocks. However, when there's a slowdown in the economy, a higher exposure might be noticed in the large-cap stocks.

Understanding How Flexi Cap Funds Work
First things first, investors in the flexi cap should always place around 65% of the money in the security or stock. A fund manager might move the assets to different market caps as soon as the market starts performing poorly. That might happen when the market is limited to a certain section. You may invest with experience and a track record. Suppose the investment underperforms. In such cases, you may switch to another one or exit the current one. So, that makes flexi cap funds a great investment solution. It offers significant returns while being reliable.

Key Differences Between Multi-cap vs Flexi-Cap Funds

Enlisted below are the key differences between multi-cap vs flexi cap funds:

Wrapping up

So, you have learned the differences between multi cap vs flexi cap funds. Multi cap and flexi cap funds both offer benefits. However, an investor should be concerned about the investment strategies to navigate through the complexities. Ideally, multicap funds offer diversification around market segments. On the other hand, flexi cap funds bring flexibility due to changing market conditions. So, the choice is yours. If you love the idea of diversification, you should always opt for multi cap funds. However, flexi-cap funds are a better choice if you are here for flexibility.