Which is better Flexicap or Multicap Mutual Fund
Whether it is about choosing the right kind of clothing at a multi brand outlet, or eating at a multi-cuisine restaurant or making the right kind of investment – flexibility is seen as a virtue. In the light of this, flexi cap funds and multi cap funds, which are free to invest across the market capitalization spectrum are believed to be a better alternative for investors. Those who look for diversified fund, Flexi and multi cap mutual funds acts as a sound investment bet. The struggles come when you want to opt among these two. So This article delight presents thoroughly insights on Which is better Flexicap or Multicap Mutual Fund.
What is Flexi Cap Fund ?
Flexi-cap funds are those funds which invest in companies across the market capitalization spectrum, i.e. large-cap, mid-cap, and small-cap stocks. These funds invest in the stocks of all the large-cap, mid-cap, and small-cap companies. Unlike mid-cap or small-cap funds where the funds focus on stocks based on market capitalization, flexi-cap funds can invest in any company irrespective of the company’s market capitalization. The fund manager can choose to assess the fund allocation and switch between different companies and sectors depending on the performance from time to time.
What is Multi Cap Fund ?
Multi-cap funds are diversified equity funds that invest in stocks of companies with different market capitalizations. MF manager does the investments in varying proportions to meet the investment objective of the fund.  While large-cap funds provide better stability to your portfolio, mid-cap, and small-cap funds provide exceptionally high returns. Sectoral funds can add to the gains if a particular sector is performing exceptionally well. Nevertheless, one fund category that stands out among the multitude due to its considerable flexibility is the multi-cap category.
The Difference between Flexicap Mutual Fund & Multicap Mutual Fund !
The key difference between multi and flexi-cap funds is of the degree to which they are exposed to mid and small-caps. Flexi-cap funds can dial down their exposure to mid or small caps right down to zero, if the fund manager deems it necessary. However, in the case of multi-cap funds, this exposure can never go below 25 percent each for mid and small-cap stocks.
For better understanding , go through this SEBI-mandated difference between multi and flexi-cap fund
You can also refer SEBI guidelines for MF categories https://www.amfiindia.com/investor-corner/knowledge-center/SEBI-categorization-of-mutual-fund-schemes.html here.
Risk : Flexicap vs Multicap Mutual Fund
Multi Cap Funds will be relatively riskier as compared to Flexi Cap Funds. As a minimum of 50% allocation is always in mid and small cap sectors. On the contrary, Flexi Cap Fund manager can move a large portion of assets to large cap funds if the mid and small cap segment is getting hammered. This could protect the downside to some extent.
Stability : Flexicap vs Multicap Mutual Fund
In the context of stability, Multi Cap Funds score over Flexi Cap Funds. If there is a sudden rally in Mid and Small cap stocks, Multi Cap Funds will benefit as they have to stick to mandate allocation. Flexi Cap will have more flexibility to move between large, mid and small and they will try to generate alpha from stock as well as market cap selection. Multicap will be more tight mandate and will have more focus on stock selection with pre-defined cap. So for stability of mandate, Multi Caps scores well.
The Conclusion : Flexicap vs Multicap Mutual Fund
Flexi-caps are better placed than multi-caps because the fund manager has the flexibility of investing wherever he wants to. He can opportunistically shift the allocations between large, mid, and small caps. As SEBI imposes no minimum bar to Flexi cap. So that’s an advantage with flexi-cap funds. They provide an opportunity for investors to invest across market caps and mitigate the risk of concentration. But with mandate of multi-cap funds, requires MF manager to invest at least 25 per cent of the portfolio in each large, mid, and small caps.
Given the same, investing in a flexi-cap fund can be a disadvantage sometimes for someone looking for significant exposure to small caps and mid caps. Since s mall cap & mid cap are lucrative from more risk more reward perspective. That’s when one must opt for a multi-cap fund. In multi cap, investors are aware of the amount of risk they are undertaking. Whereas in flexi cap funds, they are not aware of the level of risk
Final Takeaway
When it comes to investing money, the foremost rule to follow is to not put all your eggs in one basket. An investor should diversify their investment, in Equity ( large-cap, Mid, and Small-Cap, Multi-Cap), Debt and other instruments including a portion invested in traditional investment tools. Whether you should choose flexi cap/multi cap mutual funds or which is better Flexicap or Multicap Mutual Fund depends completely on your risk appetite and to what extent you want stability in your portfolio. The above considerations give you a better understanding regarding the selection of both funds.
Read also : How to select Monopoly Stocks to invest | Delivery Trading Strategy ( https://thebrightdelights.com/how-to-select-monopoly-stocks-to-invest-delivery-trading-strategy/ )