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Difference Between Flexi-Cap vs Multi-Cap Explained
Equity mutual funds have become a crucial part of the long-term investment plan. They are among the best risk-reward options in all categories. Flexi-Cap and Multi-Cap Funds are notable for their unique structures and benefits.
Flexi-Cap Funds allow the fund manager to invest across market capitalizations. You adjust it according to market conditions. Multi-cap funds follow a structured strategy to maintain balanced exposure.
This article will provide the difference between flexi-cap and multi-cap funds. So, it helps you align investments with your goals and risk tolerance.
Table of Contents
What is a Flexi-Cap Fund?
The flexi-cap funds are dynamic and flexible equity fund schemes. They don't restrict investment to any particular company size. Instead, they invest in large, mid, and small-cap firms. They give managers a wide range of options. Fund managers get the best results by watching market trends and changing their investments.
SEBI rules need at least 65% of the money in stocks, making these funds growth-focused. Flexi-Cap Funds spread money across all company sizes. Thus making them suitable for handling market changes while balancing risks and rewards. These funds are significant for investors who want adaptability and variety.
What is a Multi-Cap Fund?
Multi-cap funds invest the same amount in large-cap, mid-cap, and small-cap stocks. Managers of these funds adhere to this plan to keep the fund consistent and safe for investors. This method suits those seeking a clear and steady investment method very well.
The SEBI guideline suggests that at least 25% of the investment should fall in each category. Multi-cap funds are rule-based funds but allow minor changes depending on market conditions. This balance of rules and flexibility makes them stable and adaptable.
Key Difference Between Flexi-Cap and Multi-Cap Funds
Understanding how flexi-cap and multi-cap funds are different is significant. It helps you to choose your investment plan wisely according to your needs. The table below summarises their distinctions:
Benefits of Investing in Flexi-Cap Funds and Multi-Cap Funds
If you know the benefits of both funds, it will avoid your confusion when choosing your investment plan. The following table depicts the benefits of investing in flexi-cap and multi-cap funds:
Types of Flexi-Cap Funds
The flexible investment approach empowers fund managers to respond to changes in market conditions and even seize the greatest opportunities. Here's a breakdown of its key types:
1. Growth Flexi-Cap Funds
These involve investments in entities with high-growth potential rather than market-cap considerations. While the primary idea is long-term capital appreciation, there is a higher potential for risk.
2. Value-Oriented Flexi-Cap Funds
Value-oriented funds invest in under-priced stocks in various market segments. The ideal investor for this kind of fund has a moderate risk appetite and a long-term horizon for their investment returns.
3. Balanced Flexi-Cap Funds
These funds have a diversified portfolio with an even mix of large-cap, mid-cap, and small-cap stocks. This approach allows a blend of stability and growth, making them lucrative for investors who want stable returns.
4. Sectoral or Thematic Flexi-Cap Funds
In sectoral flexi-cap funds, the money is invested flexibly across sectors or themes without deviating from the nature of multi-cap. These are apt for investors who know about specific industries or economic themes.
Types of Multi-Cap Fund
1. Large-Cap Oriented Multi-Cap Funds
These funds' investments are mainly in large-cap companies. Meanwhile, a small amount is allocated to mid-cap and small-cap stocks. The portfolio is stable and potentially growing.2. Mid-Cap Oriented Multi-Cap Funds
These funds are mid-cap oriented, with additional investments in large-cap and small-cap stocks. It focuses on balanced growth potential and risks associated with the funds.3. Small-Cap Oriented Multi-Cap Funds
These funds are oriented toward small-cap companies, with investments in large-cap and mid-cap companies complementing them. They seek higher growth potential at an increased risk.4. Balanced Multi-Cap Funds
These funds distribute investments evenly across large, mid, and small-cap companies. They try to achieve a balanced portfolio with diversified risk and return potential.Which is Better: Flexi-Cap or Multi-Cap Fund?
Flexi-Cap and Multi-Cap funds can be chosen based on flexibility, risk, and return. Understanding all the above differences can help an investor reach sound financial goals and infer risk tolerance.
1. Investment Strategy
All large, mid, and small-cap stocks without any restrictions are invested in by Flexi-Cap Funds. Managers can move their allocations depending on market trends. Multi-Cap Funds have to keep 25% in every category. Though it limits flexibility, it has ensured equal exposure.
2. Diversification & Risk
Flexi-Cap Funds alter their allocation to reduce risk in a falling market. Multi-cap funds always hold a fixed amount in mid and small-cap stocks. This increases growth potential but also raises volatility. Flexi-Cap Funds are more stable in uncertain markets.
3. Return Potential
Flexi-Cap Funds offer stable returns by adjusting investments when needed. Multi-Cap Funds provide a high growth prospect but are riskier. The static exposure to mid and small caps results in ups and downs. Flexi-Cap Funds will be safer for cautious investors.
4. Suitability for investors
Flexi-Cap Funds are better suited for investment by stability preferring investors. Multi-cap funds suit those who can handle risk for higher returns. If you want steady growth, choose Flexi-Cap. If you can take and withstand the market swings, go for Multi-Cap.
In conclusion, flexi-cap and multi-cap funds deal with various investment orientations. For instance, flexi-cap funds provide complete adaptation. Multi-cap funds provide balanced and regular returns by following a defined allocation strategy.
Understanding their differences, benefits, and suitability helps investors make informed choices. These should align with their financial and risk goals.
Disclaimer: The information provided on this website is for general informational purposes only and should not be construed as financial, investment, or legal advice. While we strive to provide accurate and up-to-date content, we do not guarantee the completeness, reliability, or suitability of the information for your specific needs.
We do not promote or endorse any financial product or service mentioned in these articles. Readers are advised to conduct their own research, consult with financial experts, and make informed decisions based on their unique financial circumstances. Any reliance you place on the information provided here is strictly at your own risk.
FAQs about Flexi-Cap vs Multi-Cap Funds
How does flexi-cap funds' portfolio allocation differ from that of multi-cap funds?
Which fund is better for conservative investors, a flexi-cap or a multi-cap?
How would the volatility of markets impact the returns of flexi and multi-cap funds?
Does a multi-cap fund always provide more diversification?
Can flexi-cap funds outperform multi-cap funds in the bull market?
Which is better for generating long-term wealth, flexi-cap or multi-cap?
How would liquidity conditions affect flexi-cap compared to multi-cap funds?
Which fund has a lower expense ratio: flexi-cap or multi-cap?
Do either of the flexi-cap vs multi-cap types present any tax implications?
How should SIP investors choose between flexi-cap and multi-cap funds?
Are market conditions that benefit to flexi-cap also favourable for multi-cap?
Other Important Articles about Mutual Funds
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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