Multi cap funds have been around for a while. Earlier, these funds could invest in small, mid, and large cap segments without any allocation restrictions. But, in September 2020, SEBI issued a new mandate which required such funds to invest at least a 25% stake in large, mid, and small cap segments.
Although this mandate ensured hedging, it took away fund managers’ freedom to make allocations. To address these concerns, SEBI announced a new category called flexi cap mutual funds in November 2020. The flexi cap fund meaningis simple; this category allows investing in small, mid, and large cap segments without any percentage restrictions. The only restriction is that at least 65% of the fund’s assets should be invested in equity, with no limitations on the market cap.
Both schemes are worth taking stock of. To do so, we must first learn how one is different from the other.
|Differentiating parameters||Multi cap funds||Flexi cap MFs|
|Definition||A multi cap funds meaning is that – these funds invest in stocks across the market. They invest in small, medium, and large cap funds simultaneously. However, these funds have to invest 25% of their stake in large, mid, and small cap companies.||These funds also invest in stocks across the market. However, these funds allow investors to dial down their exposure to mid and small cap funds all the way to 0%.|
|Degree of exposure to equity||These funds invest a minimum 75% stake in equities.||These funds invest a minimum 65% stake in equities.|
|Market capitalisation range||These funds must invest a minimum of 25% stake in large, mid, and small stocks.||No such mandate exists on flexi cap MFs. These funds can invest wholly in large, mid, or small cap stocks.|
|Allocation||A fund manager is free to distribute 25% of the stake in small, mid, and large cap stocks.||A fund manager is free to distribute 100% of the stake into small cap, mid cap, and large cap funds. Essentially, they can choose stocks and their cross-market capitalisation.|
While both funds are popular with investors, many want to continue investing in only large cap funds. If you, too, are one such investor, flexi cap MFs might work better for you. To cater to large cap heavy portfolio investors, several Asset Management Companies (AMCs) have already converted their multi-cap MFs into flexi cap MFs.
Things to Note Before Investing
- As an investor, if you can invest for a minimum period of five years, then both multi-cap and flexi-cap funds are suitable. However, one must be prepared for high risks that tag with greater returns.
- Be familiar with your risk profile and select a scheme that fits your investment and financial goals. While fixing your investment tenure, plan your financial objectives and take into account possible risks.
- At the time of selecting your investment scheme, you will have two options – lump sum investments and Systematic Investment Plans (SIPs). SIP helps to mitigate the risks of volatile markets. The rupee-cost averaging feature of SIP will compound your wealth in the long term. Choose an investment scheme suitable to your current financial condition and future goals.
To Sum Up
It’s no secret that both multi and flexi cap mutual funds award investors an opportunity to invest across market caps. By doing so, they end up mitigating risks and generating higher returns for investors.
If you’re looking to invest in one of these two funds, or start a fresh mutual fund portfolio, turn to Tata Capital Moneyfy. We offer a user-friendly portal to compare and apply for different investment instruments. With the Tata Capital Moneyfy app, you can truly take your investment experience to the next level.