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, 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. 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 parameterMulti cap fundsFlexi cap MFs
DefinitionThese funds invest in stocks across the market. Meaning, 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 equityThese funds invest a minimum 75% stake in equities.  These funds invest a minimum 65% stake in equities.
Market capitalisation rangeThese 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.  
AllocationA 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 stake into small cap, mid cap and large cap funds. Essentially, they can choose stocks and their cross-market capitalisation.   

Additional Read: What Are Multi-cap Funds?

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.

Additional Read: With the new SEBI rules, are Multi-cap funds worth the risk?

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 Tata Capital Moneyfy app, you can truly take your investment experience to the next level.

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