Investors today have a wide range of equity mutual funds to choose from. Among them, flexi-cap and multi-cap funds are two popular categories. Both spread investments across large-cap, mid-cap, and small-cap companies. But they follow different rules, and that makes a big difference in how they perform.
What Are Flexi-Cap Funds?
Flexi-cap funds are highly flexible. Fund managers can freely shift money between large, mid, and small companies depending on market conditions. For example, if large-cap stocks are doing better, they can allocate more money there. Similarly, if mid or small-caps show potential, they can quickly increase exposure.
This flexibility gives the manager freedom to capture opportunities. However, it also means returns depend heavily on the manager’s skill and market timing.
What Are Multi-Cap Funds?
Multi-cap funds are more disciplined. By SEBI’s rule, they must invest at least 25% each in large-cap, mid-cap, and small-cap stocks. The remaining 25% can be spread as the manager decides.
This structure ensures diversification. Investors automatically get exposure across all market segments. But it also limits the manager’s ability to reduce risk during volatile times. For example, even if small-cap stocks are under pressure, a multi-cap fund must still keep a 25% allocation there.
Strengths of Each Category
- Flexi-cap funds: Great for investors who trust fund managers to make smart calls. They work well in uncertain markets because allocations can change quickly.
- Multi-cap funds: Suitable for investors who want balanced exposure without worrying about changing allocations. It provides stability and ensures that all parts of the market are included.
Can They Coexist in a Portfolio?
Yes, both categories can complement each other. A flexi-cap fund can bring active decision-making and tactical opportunities. A multi-cap fund can bring steady diversification and discipline. Together, they can balance flexibility with stability.
For example, an investor could allocate a portion of their portfolio to a flexi-cap fund for potential growth and another portion to a multi-cap fund for assured diversification. This combination may reduce overall risk while still leaving room for strong returns.
The Bottom Line
Choosing between flexi-cap and multi-cap is not always about picking one over the other. Instead, combining them can help investors optimize their equity portfolio.
As always, investors should match their choice with their risk appetite, financial goals, and investment horizon. For long-term wealth building, a mix of the two categories could be a smart way to balance risk and reward in changing markets.
