- Date : 24/06/2022
- Read: 5 mins
Flexibility is always seen as a virtue. A Flexi cap allows the fund manager to invest across the market capitalisation spectrum freely. At the same time, a multi cap is restricted and mandates the fund manager to have a minimum 25% threshold in the three fund categories.
Whether it is about choosing a dish in a restaurant, deciding what to buy at a shopping mall or even making an investment, flexibility is always seen as a virtue. Investment is a double-edged sword; it has both risks and returns. But an investor should never get swayed by the profit side and do proper research before investing.
A mutual fund is considered the most stable form of investment, and there’s an ongoing debate on Flexi Cap VS Multi Cap. Before getting into the discussion, it is primitive to know more about the market cap allocations. For a beginner investor, deciding what stock to invest in is an overwhelming question. Stocks are classified based on their market cap allocations. There are three fund categories: small cap funds, large cap stocks, and mid cap stocks.
Also Read: How large-cap, mid-cap, and small-cap funds are categorised? | Tomorrowmakers
There are three fund categories, and it is believed that instead of investing individually in these fund categories, for better market capitalisation, a fund manager should invest either in Flexi cap or multi cap.
In the first few months of 2022, the equity market saw turbulence due to various reasons. In the financial year, 2022, the small-caps and mid-caps funds are outweighing the other cap funds by giving an average return of almost a hundred per cent.
What is the Flexicap fund?
In November 2020, SEBI introduced Flexi cap funds shortly after revised multi cap segments. Equity mutual fund schemes are termed Flexi cap funds and are open-ended dynamic equity schemes. In the Flexi cap category, the fund manager has the freedom to broaden their horizon and decide what percentage they want to invest in the three fund categories. Regardless of the market capitalisation, Flexi cap funds can invest in any firm.
Flexi cap funds allow the fund manager to choose between stocks and market capitalisation. However, the fund manager of the Flexi cap category needs to invest at least sixty-five per cent of the fund’s assets in equity-related investments. Compared to mid cap and small cap funds, Flexi cap funds are less volatile.
Investors looking for a long-term capital gain or investing in an actively managed diversified portfolio of equities should consider the Flexi cap category.
Some outperforming Flexi cap funds for 2022 are Canara Robeco Flexi cap Fund, Parag Parikh Flexi cap Fund, PGIM India Flexi cap Fund and UTI Flexi cap Fund.
Also Read: How to choose an equity mutual fund | Tomorrowmakers
What is a Multicap fund?
Equity funds that are diversified and used to invest in various stocks of different companies with many other market capitalisations are known as Multicap funds. The investments done are worth different amounts and quantities. This is beneficial for achieving all of the fund’s investing goals.
In multicap funds, the investors are compelled to keep a minimum of 25% in each of the three fund categories; small cap, mid cap, and large cap. Multicap fund is unique in a sense as it provides a balance. It gives you fast growth, less risk and a lot of value to gain more wealth.
The choice of stock solely depends on the investor and his methods of investing. Whether you choose the worth or the growth. Other parameters that might help build the portfolio of the funds’ manager with only high-profile firms include
- P/E ratio
- EPS,
- Enterprise value.
If you decide to invest in a multi-cap fund, you will have the experience of many companies of varying sizes and diverse options.
Multi-cap plans are a fantastic opportunity for the long-term development of money for investors who don't want to take such risks and do not want to explore a lot of funds in the market. They can outperform mainly all the large-cup funds but underperform in small-cap and mid-cap funds.
Since the fund manager is investing in all the market sectors, it is preferable to invest in multi-cap funds when the market is bearish so that the investor gets a diverse portfolio.
Some of the outperforming multi cap funds of 2022 are Quant Active Fund, Mahindra Manulife Multi-Cap Badhat Yojana, Baroda BNP Paribas Multi Cap Fund, and ICICI Prudential Multicap Fund.
Also Read: How to choose between multi-cap funds and Flexi-cap funds?
Final Thoughts
In 2021, multi cap funds surpassed Flexi cap funds by a significant margin.
Although Flexi cap funds are flexible, they are constrained by some rules when they get bigger. So, a Flexi cap with a smaller AUM is a good option.
In the Flexi cap vs multi cap battle, the Flexi cap has the upper hand due to its flexibility. As there is no minimum allocation to market capitalisation, the fund manager must put his skills to the test and judge where to invest.
Risk appetite is the driving force that leads to choosing between multi cap funds and Flexi cap funds. If investors want to invest in different market cap allocations, they can go for multi cap funds. But, if they are unsure which fund categories suit them and want the fund manager to choose the market cap allocation, they should invest in a Flexi cap fund.
Flexi cap and multi cap funds are always used in conjunction, and it is on the investor to see the difference between them. It is considered wise to consult a financial advisor for better financial planning.
