Flexi-cap funds are mutual funds that invest in firms’ stock and equity-rated securities in different market capitalizations, including small-cap, mid-cap, and large-cap. These open-ended, dynamic equity funds must invest at least 65 percent of their total assets in equities and equity-related securities. Investors can limit their risks and lower volatility by investing in such funds.

What are Flexi cap Mutual Funds?

A flexi-cap fund helps investors diversify their portfolios by investing in firms with varying market capitalizations, reducing risk and volatility. Diversified equities funds or multi-cap funds are other names for them.

Unlike mid-cap and small-cap funds, which invest in equities depending on their market capitalization, Flexi-cap funds can invest in any firm regardless of its market capitalization.

The fund manager evaluates the development potential of numerous businesses, regardless of their size, and allocates funds to various market sectors and industries.

Benefits of Flexi cap funds

  • Fund managers are free to invest throughout the market capitalization spectrum
  • A well-diversified equities strategy with a “go-anywhere” attitude
  • Ability to capitalize on opportunities throughout the market spectrum – regardless of market capitalization, industry, or style
  • It aims to take advantage of investment possibilities across the board
  • Due to a diverse portfolio, the risk and return components are relatively well balanced

What are Multi cap Mutual Funds?

While large-cap funds offer more portfolio stability, mid-cap and small-cap funds offer extraordinary returns. If a specific industry performs exceptionally well, sectoral funds might contribute to the gains. However, the multi-cap category stands out among the many due to its tremendous versatility.

Multi-cap funds, in other words, are diversified equity funds invested in equities of firms with various market capitalizations. The investments are made in multiple quantities to achieve the fund’s investing goal.

Benefits of Multi cap funds

  • This equity-oriented fund aims to maintain a diversified portfolio of prominent, mid-cap, and small-cap firms, as the name implies.
  • Regardless of market circumstances, a Multi-cap Fund must maintain its equity allocation. As a result, you have the best of both worlds: large-cap stability and mid-cap and small-cap high-return potential.
  • The fund manager does not have much leeway when shifting allocation to a particular market capitalization sector.
  • However, if the large-cap portfolio is healthy, it may provide stability. Most Multi-cap Funds’ stock portfolios are skewed toward large-cap corporations, with the remainder invested in mid-cap and small-cap enterprises.

How do Multi-cap funds and Flexi-cap funds perform?

Smaller firms’ equities, battered by the epidemic, have risen to record highs thanks to a broad-based market resurgence. Compared to their large-cap counterparts, mid-cap and small-cap equities also did well.

Multi-cap funds have more substantial exposure to mid-size and small-cap stocks due to a market cap limit of at least 25 percent in each group. Mid and small-cap categories profited from the remarkable rise in smaller firms’ prices, favoring multi-cap funds.

Multi-cap funds tend to perform better when there is an all-around rise across market capitalizations throughout a bull market trend. A Multi-cap Fund, on the other hand, may be more sensitive than a Flexi-cap Fund during a weak market.

To weather the storms of volatility, it must retain a well-balanced portfolio with a large-cap component, which may give some stability.

When mid-caps and small-caps are likely to beat large-caps in a bull market trend, Flexi-cap funds contain a quality portfolio of smaller firms to reward investors with optimal returns. A Flexi-cap Fund’s fund managers may earn alpha by astutely spotting opportunities and hazards throughout the market cap range thanks to this flexibility.

In negative market situations, when mid-cap and share prices are very volatile, Flexi-cap funds may minimize downside risk more significantly than a Multi-cap Fund by fudging the equity portfolio primarily to large caps. Because there is no market cap constraint, it may cut the allocation to mid-caps and small-caps.

Bottom Line

Flexi-cap funds are superior since the fund manager has the freedom to invest anywhere he wants and can change the allocations between big, mid, and small companies as needed. On the other hand, multi-caps are required to invest at least 25% of their total assets in big, mid, and small-cap stocks.

However, when Flexi-caps reach a size greater than Rs 10,000 crore, they face limitations. The fund manager will then have difficulty finding chances in the small-cap area since even a 10% to 15% commitment becomes significant.

Flexi-caps with lower assets under management (AUM) are thus much superior.