Difference Between Multi Cap And Flexi Cap Mutual Funds

There are large cap funds that invest in India's biggest companies, there are mid cap funds that invest in mid-sized companies, there are small cap funds that invest in small companies, and then there is a fund category that invests in big, small and mid-sized companies. This fund type is Multi Cap Mutual Fund.

Flexi-cap funds have the liberty to invest across any of the 3 categories – small-cap, mid-cap and large-cap without any limits, as long as at least 65% of the fund consists of equity and equity-related instruments. Investors get to diversify across companies of various market caps whilst reducing volatility and curbing risk.

Advantages of Investing in Multi Cap Funds

Here’s a look at some benefits of this fund.

• Diversification

Since multi cap funds invest across companies of various sizes and sectors, they offer a diversified portfolio. This diversified approach lowers down the risk for you. That's because different sectors or parts of the market can perform differently at any given time, and this spreading out of investments keeps the risk in control.

• Exposure To All Key Sectors Of The Economy

Since these funds don't restrict themselves to a particular market cap or sector, you get exposure to all the key sectors and companies within them that are driving the Indian economy forward. What is means is that you don't miss out on any opportunity available in the Indian market

• Right Portfolio For The Prevailing Market Condition

The flexibility of deciding the mix between large, mid and small cap allows these funds to change the portfolio composition so that it is best suited for the market condition. For instance, if the mid and small cap stocks become overvalued and it looks like that space is heading for a big space, the fund manager can move to large caps and take a defensive position.

Benefits Of Flexi Cap Mutual Fund

Here’s a look at some benefits of this fund.

• Diversification

When you think of investing across market caps, diversification would pop up in your mind first. There is a ‘go-anywhere’ approach to managing this fund which increases exposure to various sectors, themes and styles.

• Risk Mitigation

Let’s say one has invested solely in small caps and down goes the market. A well-diversified portfolio cushions an investor against market ups and downs and mitigates the risk associated.

• Market Cycles

Markets have their fair share of roller coaster rides but it is our job, as investors, to stay as secured as possible during the rides. A flexi-cap fund’s dynamic nature helps it to steer well through various market cycles.

• Dynamic

A theme that was hot 5 years ago may not even be relevant today. Thus, a fund that is dynamic in nature and adapts to the ever-evolving world of investing is more appropriate. A flexi-cap fund overweights or underweights across small, mid and large cap stocks depending on what’s attractive and is regularly monitored.

Conclusion

Remember, choosing the right investment should depend on your investment preferences and objectives and not on external market conditions. This is true for equity mutual funds too. Regardless of the market sentiment, focusing on the fundamentals and choosing the fund that helps you achieve your financial goals with ease.

Also read: 

Beginners Guide to Mutual Funds

Should I Buy Mutual Funds or Fixed Deposits?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.