A Multi-Cap fund is an open-ended mutual fund that allows investors to invest in stocks across different market capitalizations. This type of fund offers the convenience of diversification to the investors and helps them mitigate risk by investing across various sectors, market capitalizations, and industries. On one hand, Flexi cap funds allow investors to invest in both large-, mid-, and small-cap equities while Multi-cap funds are limited only to large and mid-caps companies. Let’s understand the difference between multi-cap vs flexi cap mutual funds in more detail.

What is a multi-cap fund?

Multi Cap Funds are open-ended equity schemes that offer exposure or investment in securities belonging to companies of various market capitalizations. It is a diversified fund that allows the portfolio manager to switch between large-cap stocks,-cap stocks, and small-cap stocks depending upon their outlook and market situation.

Multi Cap Funds provide investors with exposure to different types of companies across several sectors and industries. They are not limited to just large-cap companies or mid-caps companies but can also invest in small cap companies as well if they feel the company has good potential for growth. Multi Cap Funds primarily aim to generate higher returns than equity markets over the long run by investing across different market caps.

Portfolio managers actively manage these funds based on their research or views about certain stocks, industry trends, and macroeconomic factors and are actively managed. Some of the advantages that this fund provides are diversification, flexibility, and the potential for higher returns in the long run.

What is a flexi-cap fund?

Flexi-Cap Funds are open-ended equity schemes that invest in stocks of different market capitalizations. Unlike Multi Cap Funds, Flexi Cap funds focus on investing across large, mid & small cap companies. This fund is suitable for investors who want to take higher risk than the other category of funds by investing in companies belonging to all three categories.

The portfolio manager makes investments depending upon their outlook and investment strategy which could include sector rotation and a top-down approach. The portfolio could also be dynamic, where it changes based on the fund manager’s outlook or a combination of both approaches depending upon the scheme’s objectives.

Moreover, these types of funds tend to provide higher returns as compared to multi-cap funds in the long run. However, these funds also come with higher risk as compared to other categories of mutual fund investments. Flexi Cap Funds are suitable for investors who want to take risks and have a minimum investment horizon of 3-5 years.

How to choose between multi-cap and flexi-cap funds?

When it comes to choosing between Multi Cap Funds & Flexi Cap Funds, investors must first assess their risk appetite. If the investor is looking for lower risk investments with a moderate return potential, then they can opt for Multi Cap Funds. On the other hand, if they are willing to take higher risks in order to gain higher returns, then Flexi Cap Fund might be more suitable.

Apart from assessing the investor’s risk appetite, it is also important to review the past performance of both these types of funds and analyze their expenses as well as evaluate their portfolio holdings before making any final decision on which fund to invest in. Lastly, investors should also look at the fund manager’s experience and track record. This will help them make a well-informed decision which will yield good returns in the long run.

What are the factors that need to be considered before investing in these funds?

Before investing in Multi Cap Funds or Flexi-Cap Funds, it is important to consider a few factors such as the fund’s objectives, tenure of investment, risk profile, and return potential. Investors should also analyze the fund’s portfolio composition and assess its exposure to large cap stocks, mid cap stocks, small cap stocks, and other sector/industry-specific investments.

Additionally, investors should always review the past performance of the fund and its expenses in order to ensure that they are making an informed decision. It is also important to research and understands the fund manager’s experience level and track record with these types of funds.

The Bottom Line

Multi Cap Funds and Flexi-Cap Funds are two types of equity mutual funds that can be suitable investments based on an investor’s risk appetite and investment goals. Before investing in either of these funds, assessing one’s risk profile, analyzing past performance, evaluating portfolio holdings and expenses, and reviewing the fund manager’s experience level is important. By taking all these factors into consideration, investors can make informed decisions that will help them achieve their desired returns in the long run.