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Equity-oriented mutual funds could be a significant part of your portfolio if you are looking for wealth creation. Within equity-oriented mutual funds, there are other sub-categories of mutual funds, namely Multi-cap Funds and Flexi-cap Funds. Although both the subcategories of funds invest in businesses of different market capitalisations, the ways in which they can do so differ. Read further to know more about Flexi Cap Funds vs Multi Cap Funds.
Multicap mutual funds are a type of equity mutual fund that invest a minimum of 75% of its total assets in equity and equity-related instruments. The fund must invest at least 25% of its assets across large-cap, mid-cap and small-cap stocks individually. On the other hand, flexi cap funds invest across market caps. The fund must invest at least 65% of its assets across large-cap, mid-cap and small-cap stocks. Thus, fund managers have the liberty to invest across companies without worrying about their size.
Difference Between Flexi Cap and Multi Cap Funds
| Basis of Difference | Flexi Cap funds | Multi Cap Funds |
| Who should invest? | Suitable for long-term investments and for high-risk tolerance levels. | Suitable for moderate risk takers. |
| Market cap exposure | No mandate on allocation. | At least 25% in each market cap: large, mid and small-cap companies. |
| Equity exposure | At least 65% in equities or equity-related instruments. | At least 75% in equities or equity-related instruments. |
| Freedom to choose | Fund managers do not have any restrictions. | Fund managers must invest at least 25% across each market capitalisation. |
| Risks | Flexi cap funds are high-risk investment options. | Multi-cap funds are high-risk investment options. |
| Suitable Investment Horizon | At least 5-7 years. | Minimum 5 years. |
Tax Implications
Both are taxed in a similar manner. STCG tax at the rate of 15% is applicable when the investments are held for less than a year. LTCG tax at the rate of 10% is applicable when the investments are held for more than 1 year and also when the gain is more than Rs 1 lakh per year.
Similarities Between Flexi Cap and Multi Cap Funds
Despite the differences between flexi cap and multi cap funds, both have some similarities. These funds are diversified equity funds that invest across different market caps.
- Both funds are good investment options for investors with a long term investment horizon (5 years or more).
- Both funds have a strategy to invest across market capitalization irrespective of the industry. Thus offering a diversified portfolio.
- As both are equity funds, the taxation on capital gains is the same.
Flexi cap vs Multi cap Fund – Which is Better?
Multi cap funds are suitable for investors who are looking for diversification across different market caps and industries. Small investors who cannot invest in different sectors individually due to lack of knowledge or money can also invest in these funds.
As Flexi cap funds are highly volatile investment options, it is suitable for investors who have a long-term investment horizon and those who understand the risk associated with these funds. Additionally, investors who understand the market fluctuations and the functioning of the stock market can invest in these funds.
Deciding where to invest depends on various factors. Also, it is advisable to choose the fund based on the investment goals, risk tolerance levels and investment horizons. Thus, it is wise to pick a fund that best suits your needs and expectations.
Frequently Asked Questions
Yes, since flexi cap fund is a pure equity scheme, a long term investment horizon is necessary to enjoy higher growth.
Yes, you should invest in a multi cap fund for the long term. Since multi cap funds invest 75% of their assets across equities, it is advisable to have a long term investment horizon to combat short term market volatility. With a longer investment horizon, investors can enjoy greater growth.
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