Multicap Fund vs. Flexi Cap Fund - Know the difference

Though Multicap funds and Flexi cap funds both invest in stocks and related instruments across market caps, there are certain differences in the way these funds work. That’s why it is important to know how these funds are different from one another.

What are Multicap funds?

Funds investing in stocks belonging to more than one market cap are called multicap funds. These funds give guaranteed exposure to large, mid, and small-cap stocks. As per the SEBI guidelines, multicap funds must invest 25% each in the three market caps. For the remaining 25%, the fund manager may decide to invest in at their discretion. Further, investments in any market cap cannot go above 50%. Multi-caps aim to achieve balance between growth and stability. While investing in small and mid-cap funds offers potential for capital appreciation, investing in a large cap protects against market volatility.

What are Flexi Cap funds?

Flexi cap funds invest a minimum of 65% of their funds in equity stocks. Unlike Multicap funds, Flexi cap funds do not have any mandatory exposure limit. The fund manager has the freedom to choose investment allocations based on the fund’s broader outlook. Generally, flexi cap funds would invest more in large cap stocks when the market has a bearish outlook, and in small and mid cap stocks in a bull market.

Know the difference between Multicap and Flexi cap funds

1. https://www.sebi.gov.in/legal/circulars/sep-2020/circular-on-asset-allocation-of-multi-cap-funds_47542.html

2. https://www.sebi.gov.in/legal/circulars/nov-2020/circular-on-introduction-of-flexi-cap-fund-as-a-new-category-under-equity-schemes_48108.html

Note: 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.

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Ltd. is not liable or responsible for any loss or shortfall resulting from the operation of the schemes.

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

While both multi and flexi cap funds may invest across market cap segments, they address different investor needs and risk aptitudes.

Investors wishing to gain exposure to different market cap segments may invest in Multicap funds. Investors who want to leave allocations to the fund manager’s discretion may invest in Flexi cap funds.

The primary difference between a multicap fund and a flexi cap fund is the exposure to small and mid cap funds. While multicap funds cannot reduce their exposure to small and mid-cap funds below 25% each at all times, a flexi cap fund manager may reduce the fund's exposure to small and mid-cap funds to zero, if need be.

Conclusion

In both the cases, much depends on the expertise of the fund manager as well as investor preferences. If one is looking to invest with a aim to having exposure to all three market segments at all times, multicap may be a suitable choice. For those investors who prefer a more dynamic approach to allocation of their funds, flexi cap may be an ideal choice.

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