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

20 July 2022

Mutual Funds have become very well-liked in India over the past few years, and for all the good reasons as well. Mutual Funds are preferred by many investors due to the returns they offer. Mutual Funds assist us in achieving our long-term wealth-generation objectives in addition to helping us recover from inflation over time.

Since Mutual Funds become a significant component of our portfolio, it is crucial that we comprehend how to invest in them effectively so that we can make the best choices and create the portfolio we desire.

Therefore, when we talk about the long-term or beating inflation, equity mutual funds are the first category that comes to mind.

When we discuss equity mutual funds in a much larger context, we know that they have various sub-categories, and two, in particular, are Multi-Cap Funds and Flexi-Cap Funds. Now you might be wondering, What is a Multi-Cap Fund and What is Flexi-Cap Fund.

Below, we have explained the meaning of them both along with the differences between the both. 

Multi Cap Fund Meaning 

Multi-Cap Funds invest their corpus in a portfolio of equity and equity-related stocks of businesses with a range of market capitalizations, as the name implies. Therefore, investments in large-cap, small-cap, and mid-cap companies can be found in a multi-cap fund. The Multi-Cap Fund category is a good choice to match your risk tolerance because every scheme invests in different percentages.

Flexi Cap Fund Meaning

A Flexi-Cap Fund is an open-ended, dynamic equity scheme, according to SEBl's notification. It makes investments in businesses with any market capitalization. Specifically, large, midsize, and small-cap companies. A minimum of 65% of the scheme's total assets must be invested in equity and equity-related instruments.

Read on for more information as we discuss the definitions and distinctions of these two sub-categories (Multi-Cap Funds & Flexi Cap Funds) of Equity Funds in this blog.

You may also want to read SEBI Introduces Flexi-cap Category in Mutual Funds

Major Differences Between Multi-Cap Funds & Flexi-Cap Funds

Here are the main differences between Flexi cap vs Multi cap-

 

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 Flexi-Cap Fund. It makes investments in businesses with 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. You should be aware of the taxation of Multi-Cap Funds in order to determine that. 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, there is also a good plan. Good stock investments are beneficial. Additionally, it offers the benefit of higher returns with lower risk.

Conclusion

The key distinctions between Flexi cap vs multicap funds were discussed in this blog. We trust that the details we've just given you will help you comprehend both subjects better.

Please be aware that the purpose of this blog was merely educational. Both Multi-Cap and Flexi-Cap Funds provide portfolio diversification, but they should only be taken into account if they match your financial objectives, level of risk tolerance, and time horizon for investing.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww.

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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