Multi-Cap Funds Vs Flexi-Cap Funds – How Are They Different?

 Particulars

Multi-Cap Funds

Flexi-Cap Funds

Meaning

This equity-oriented fund, namely Multi-Cap Funds' mandate is to maintain a diversified portfolio of large, mid-cap, and small-cap corporations, as the name would imply.

An open-ended, dynamic equity program is called a Flexi-Cap Fund. It makes investments in businesses without any market capitalization. Specifically large, mid-size, and small-cap companies.

Equity Exposure

Multi-Cap Funds require a minimum of 75% in Equities. This means that at least 75% of the scheme's total assets must be invested in equity and instruments that relate to equity.

Flexi-Cap Funds require a minimum of 65% in Equities. This means that at least 65% of the scheme's total assets must be allocated to investments in equity and instruments with an equity component.

Market Cap Allocation

Multi-Cap Funds are required to have a minimum 25% allocation of their portfolio in large-cap, mid-cap, and small-cap companies, as per SEBI.

Flexi-Cap Funds are free to invest in any market cap because they have no mandate. Flexi-Cap Funds invest in stocks of companies with a range of capitalizations without having a set percentage allocated to anyone.

Fund Manager Discretion

In Multi-Cap Funds, the fund manager has the freedom to select stocks and market capitalization.

In Flexi-Cap Funds, only the stocks with the specified market cap are available for the fund manager to select.

Risks

A Multi-Cap Fund, by definition, invests in the stocks of large-cap, mid-cap, and small-cap corporations. As a result, these plans are riskier than large-cap plans, which invest mainly in large corporations.

Flexi-Cap Funds offer exposure to a wide range of equity securities, covering all industries and business entities. This could result in a portfolio with a strong mix of stocks that produces moderate returns. Furthermore, if held for a long time, this fund offers a lot of flexibility in managing the risk associated with market volatility.

Tax Implications

The post-tax returns are what count. To determine that, you should be aware of the taxation of Multi-Cap Funds. Depending on how long you held the investment, you may or may not have to pay taxes on the capital gains you made when selling your Multi-Cap Fund.

The gains on your investments are considered short-term capital gains (STCG) and are subject to a 15 per cent tax if you sell them within a year. The gains on any Multi-Cap investment held for longer than a year are categorized as taxable term capital gains (LTCG). Gains up to Rs. 1 lakh is exempt from taxes. Gains over one lakh rupees are subject to a 10% tax.

A Flexi-Cap Fund is regarded as an Equity Mutual Fund under the Income Tax Act, making gains from investments in this category subject to a lower tax rate. Any profit realized within a year is considered short-term and is subject to a flat tax of 15%.

Profits realized on such a fund after a year are considered long-term capital gains and are fully exempt up to Rs. 1 lakh annually, after which the remaining amount is subject to a flat tax of 10% without indexation.

Who Should Invest?

Multi-Cap Funds are appropriate for those who are willing to take on more risk in exchange for greater profits.

You'll need a longer investment horizon of at least 5-7 years due to the greater mid-cap and small-cap components.

Flexi-Cap Funds may be of interest to investors looking for a large-cap-focused fund with a tactical allocation to mid-cap and small-cap stocks and invest money into the sector within a 5-year time horizon.

Benefits

Multi-Cap Funds each have a unique area of expertise. The fund manager has discretion in this. Large-cap, mid-cap, and small-cap investments are all available.

The long-term risk is additionally lower in Multi-Cap Funds. Additionally, the risk is lower compared to small-cap and mid-cap funds.

Flexi-Cap Funds have a lot of advantages. Flexi-Cap Funds, for instance, lower the risk of market volatility.

In addition, it becomes simpler for the fund manager to adjust the exposure to market capitalization, and it is also simpler for investors to balance their portfolios.

For small investors, this is also a good plan. Good stock investments are beneficial. Additionally, it offers the benefit of higher returns with lower risk.