Flexi Cap Vs Multi Cap Funds: Which One Should You Choose?
Flexi Cap Vs Multi-Cap Funds: Which is Better?
Mutual funds have become a popular investment option among investors and the rate of opening of Demat accounts has been tremendously increasing post covid 19 pandemic. Mutual funds are managed by fund managers who collect money from various investors to offer returns. Investors can achieve their long-term financial goals by investing in it and most importantly most mutual funds offer returns that beat inflation. Investors must consider the inflation rate before investing in any financial instruments because inflation has the power to reduce your money over time. For example, if you have parked your money in a fixed deposit which is giving 5% interest per year whereas the inflation rate is 6%. ( Actual return = Nominal returns - inflation) Hence, the actual return is negative which is -1%. In this article, we are going to learn about Flexi vs multi-cap, the benefits of Flexi cap funds, and multi-cap funds.
What is a Multi-Cap fund?
Multi-cap funds comprise companies with different market capitalizations such as large-cap, mid-cap, and small-cap stocks. Multi-cap funds have to invest in large-cap, mid-cap, and small-cap companies in equal proportion. Investors get to invest in different market capitalization stocks by investing in a single fund. Ideally, investors should invest in multi-cap funds for more than 5 years to maximize returns. It allows investors to diversify their investment across different market capitalization stocks which helps to reduce risk.
Top 5 Multi-Cap Mutual Funds
|Multi cap funds||Minimum SIP||Expense ratio|
|Mahindra Manulife Multi Cap Badhat Yojana (Growth)||Rs. 500||0.46%|
|Baroda BNP Paribas Multi Cap Fund Direct-Growth||Rs. 500||1.16%|
What is a Flexi cap fund?
Flexi cap funds invest in different market capitalization stocks as well as different sector or industry stocks. The portfolio of Flexi cap funds should be rebalanced according to the market conditions. Unlike other funds, it does not concentrate its investment in a single sector but rather has diversified its investment across various companies that belong to different market caps and sectors. The fund manager rebalances the portfolio according to market changes. For example, if the fund manager analyses that the IT sector will not perform well in the next year, he will remove the IT sector stocks to balance the risk and return. Hence, the risk and reward are balanced in the Flexi cap funds.
Top 5 Flexi Cap Funds 2022
Difference between Multi-Cap and Flexi cap Funds
Differences between Flexi cap and Multi-Cap funds are:
- Multi-cap funds are types of equity funds that diversify their investment in different market capitalizations which are large cap, midcap, and small-cap companies while Flexi cap funds are types of mutual funds that diversify their investment in companies belonging from different market capitalization and sectors.
- Multi cap funds allocated their investment in different market cap stocks with an equal proportion which is 25% in each market cap whereas in Flexi cap funds there are no restrictions of fixed allocation in each market cap or sector stocks.
- Fund managers of multi-cap funds have to allocate 75% in equities whereas, in Flexi cap funds, the minimum allocation in equities is 65%.
- Fund managers of multi-cap funds have limited freedom while selecting stocks while fund managers of Flexi-cap funds have no restriction while choosing stocks hence, they can choose stocks from different market capitalizations and sectors.
- Generally, Flexi cap funds allocate their capital majorly to large-cap stocks while Multi cap funds allocate their capital majorly to small-cap stocks.
- A multi-cap fund invests in different market cap companies that include large-cap, mid-cap, and small-cap stocks but they mainly invest in large-cap stocks which makes it less risky whereas Flexi cap funds are a type of equity funds that covers stocks from various sectors and Market capitalization. Hence, the fund is strongly diversified which helps in managing risk during market volatility.
- Both multi-cap funds and Flexi cap funds have tax implications on it. If an investor stays invested in these funds for more than one year, long-term capital gain (LTCG) of 15% is levied on investors, and short-term capital gain (STCG) of 10% is levied on investors if they have invested for less than one year. However, the tax is levied only when the total gain is more than one lakh.
- Multicap funds are suitable for those investors who have more risk tolerance to earn more profits as they invest majorly in small-cap and mid-cap stocks while Flexi cap funds are suitable for those investors who have less risk appetite as they majorly invest in large-cap stocks and a smaller portion in small-cap and mid-cap stocks which reduce the risk exposure. However, in both funds, investors should stay invested for more than five years to maximize the return potential.
To conclude, investors who are looking for diversified mutual funds and can stay invested in these funds for more than 5 years can invest in both Flexi-cap funds and multi-cap funds. There is no vast difference between flexi cap and multi-cap as both the funds allow an investor to diversify their investment in a single fund. However, investors should also consider the risks associated with these funds. Investment decisions are made after doing thorough research such as research about the financial instrument who are planning to invest, investment objective, risk tolerance, and time horizon.
Can I invest in a Flexi cap fund for the long term?
Flexi cap funds are best suitable for moderate investors who prefer to balance risk and reward and they can create wealth if they stay invested for a long period.
What is Flexi cap vs multi-cap?
Both Flexi cap and multi-cap funds are subcategories of equity mutual funds. Flexi-cap funds include stocks belonging to different sectors and market caps whereas multi-cap funds include stocks belonging to different market capitalizations.
How does a Flexi cap fund function?
Flexi cap funds are a type of equity fund that invests in companies that are from different market caps and sectors.
Which Flexi cap funds are 5-star rated?
When it comes to diversifying your investment through mutual funds, Flexi cap funds are a preferable option for investors. 5-star rated Flexi cap funds are PGIM India Flexi cap Fund-Direct Plan and Parag Parikh Flexi Cap Fund-Direct Plan.
Which multi-cap funds are top-rated?
Top-rated Multi cap funds are
- Quant Active Fund: The expense ratio of this fund is 0.58% and has given a 29.62% return per annum.
- PGIM India Flexi Cap Fund: The expense ratio of this fund is 0.32% and has given a 22.2% return per annum.
- Invesco India Multicap Fund: The expense ratio of this fund is 0.8% and has given a 17.02% return per annum.