If you are looking for a way to invest in the stock market through mutual funds, you might have come across two categories of equity funds: multi cap and flexi cap. These are funds that invest in companies of different sizes, or market capitalizations, such as large cap, mid cap and small cap. But what is the difference between these two categories and which one should you choose for your portfolio? Let’s find out.
Multi cap funds are equity funds that have to invest at least 75% of their assets in stocks of companies across different market caps, with a minimum of 25% each in large cap, mid cap and small cap stocks. This means that they have to maintain a balanced exposure to all segments of the market, regardless of their performance or potential. The advantage of multi cap funds is that they offer diversification and reduce the risk of concentration in any one segment. The disadvantage is that they may not be able to take advantage of the opportunities in any particular segment or sector, as they have to follow a predefined allocation.
Flexi cap funds are equity funds that have to invest at least 65% of their assets in stocks of companies across different market caps, but without any restriction on the proportion of each segment. This means that they have the flexibility to change their allocation according to the market conditions and the fund manager’s view. The advantage of flexi cap funds is that they can adapt to the changing market dynamics and capture the growth potential of any segment or sector. The disadvantage is that they may have higher volatility and risk, as they depend on the fund manager’s skill and judgment.
So, which category is better for you? The answer depends on your risk appetite, investment horizon and return expectations. If you are looking for a stable and diversified portfolio that can perform well across market cycles, you may opt for multi cap funds. If you are looking for a dynamic and aggressive portfolio that can generate higher returns by taking advantage of market opportunities, you may opt for flexi cap funds. However, you should also consider the track record, performance and expense ratio of the individual funds before investing.
To sum up, multi cap and flexi cap funds are both equity funds that invest in companies of different sizes, but with different levels of flexibility and risk-reward trade-off. You should choose the category that suits your investment profile and goals. You can also invest in both categories to create a balanced portfolio that can benefit from both stability and growth.