Mutual Funds have gained significant popularity in India over the past few years, and it’s easy to see why. They’re favoured by many investors due to the returns they can offer. Beyond just helping us keep up with inflation, Mutual Funds also play a crucial role in meeting our long-term wealth generation objectives.
Given how important Mutual Funds have become in our investment portfolios, it’s essential to understand how to invest in them wisely. This way, we can make informed decisions and build the portfolio that best suits our needs.
When thinking about long-term investments or beating inflation, equity mutual funds are often the first option that comes to mind. Within the broader category of equity mutual funds, two specific types that often come up are Multi-Cap Funds and Flexi-Cap Funds.
What is a Multi-Cap Fund?
As the name suggests, Multi-Cap Funds invest in a diversified portfolio of equity and equity-related stocks across companies with varying market capitalisations. This means that a Multi-Cap Fund will include investments in large-cap, mid-cap, and small-cap companies Understanding the Differences: Large Cap, Mid Cap, and Small Cap Funds. The specific allocation to each category varies by scheme, allowing you to choose a fund that aligns with your risk tolerance.
What is a Flexi-Cap Fund?
Flexi-Cap Fund is an open-ended, dynamic equity scheme that invests across companies of any market capitalisation—be it large, mid-size, or small-cap companies. At least 65% of the scheme’s total assets must be invested in equity and equity-related instruments.
Major Differences Between Multi-Cap Funds & Flexi-Cap Funds
Meaning: Multi-Cap Funds Types Of Mutual Funds You Should Know are equity-oriented and designed to maintain a diversified portfolio that includes large-cap, mid-cap, and small-cap companies. On the other hand, a Flexi-Cap Fund is more flexible, allowing investments across any market capitalisation without any fixed allocation.
Equity Exposure: Multi-Cap Funds require a minimum of 75% of their assets to be invested in equity and related instruments. Flexi-Cap Funds, however, require only 65%.
Market Cap Allocation: Multi-Cap Funds must allocate at least 25% of their portfolio to large-cap, mid-cap, and small-cap companies each. Flexi-Cap Funds don’t have such a mandate and can invest freely across market caps.
Risks: Multi-Cap Funds, by definition, invest in large, mid, and small-cap companies, making them riskier compared to funds that focus solely on large-cap companies. Flexi-Cap Funds, due to their broader investment scope, can offer a more balanced portfolio, potentially leading to moderate returns with managed risks.
Who Should Invest? Multi-Cap Funds may be ideal for those willing to take on higher risks for potentially greater returns and who have a longer investment horizon. Flexi-Cap Funds might appeal to investors seeking a large-cap-focused fund with some exposure to mid and small-cap stocks.
Benefits: Multi-Cap Funds offer the benefit of diversified investments across market caps, with lower long-term risk compared to pure mid or small-cap funds. Flexi-Cap Funds, on the other hand, offer flexibility in adjusting to market conditions, potentially leading to balanced returns with lower risk. They can be a good option for investors looking for a mix of growth and stability.
Conclusion
While both Multi-Cap and Flexi-Cap Funds offer portfolio diversification, it’s essential to choose the one that aligns with your financial objectives, risk tolerance, and investment timeline.
