Decoding the investment maze: Multi-Cap vs. Flexi-Cap Funds - Embarking on the right journey for your financial dreams
Key differences between multi-cap and flexi-cap equity funds.
Introduction
Multicap funds and flexi-cap funds are equity mutual funds that invest in businesses of all sizes and market capitalizations. There are, however, some significant distinctions between the two types of funds.
Multicap Funds
The Securities and Exchange Board of India (SEBI) requires multicap funds to invest at least 25 per cent of their assets in each of the three market capitalization segments: Large-Cap, Mid-Cap, and Small-Cap. This implies that multi-cap funds have a diverse stock portfolio, which can assist in decreasing risk.
Multicap funds are also more cautious than flexi-cap funds since they must invest a major amount of their assets in large-cap stocks. Large-cap stocks are often seen as less hazardous than mid-cap and small-cap equities.
Flexi-cap Funds
Flexi-cap funds are not required by law to deploy their assets across different market capitalization groups. This provides fund managers more freedom to invest in equities they feel have the most value potential.
Flexi-cap funds can invest in a variety of equities, ranging from large-cap blue chips to small-cap growth businesses. This allows investors to participate in the growth of all areas of the equity market.
Key Differences Between Multi-cap and Flexi-cap Funds
The following data summarises the fundamental differences between multi-cap and flexi-cap funds:
Multi-cap funds must maintain a diversified portfolio across market capitalization divisions, making them less hazardous than flexi-cap funds. However, this means that multi-cap funds have a smaller potential return.
Flexi-cap funds, on the other hand, have no such constraints, providing fund managers more freedom to invest in firms that they feel provide the most value potential. As a result, flexi-cap funds offer larger return potential, but they also have higher risk.
Which Fund Type Is Best for You?
The optimal sort of fund for you will be determined by your own investing objectives and risk tolerance. A multi-cap fund may be a suitable alternative for you if you want a fund that offers a diverse portfolio of equities with minimal risk.
A flexi-cap fund may be a better option for you if you are ready to take on greater risk in exchange for the possibility of larger rewards.
How to Choose a Multi-cap or Flexi-cap Fund
There are a few crucial elements to consider when selecting a multi-cap or flexi-cap fund:
Fund manager: The fund manager's track record and experience are crucial factors to examine. Look for a fund manager with a successful track record of managing equities funds.
Investment philosophy: It is critical to select a fund that shares your investment philosophy. Multicap and flexi-cap funds may have distinct investing philosophies, so do your homework before selecting a fund.
Performance: Examine the fund's previous performance to see how it has fared in various market situations. However, keep in mind that previous success is not a guarantee of future outcomes.
Expense ratio: The expense ratio is the percentage of the fund's assets utilised to meet the fund's management costs. A lower expense ratio indicates that more of your money is being invested in the market.
Conclusion:
Multicap and flexi-cap funds are two forms of equity mutual funds that can provide investors with a diversified stock portfolio. There are, however, some significant distinctions between the two types of funds. Multicap funds are more cautious than flexi-cap funds, but flexi-cap funds offer the potential for bigger returns.
The optimal sort of fund for you will be determined by your investing objectives and risk tolerance. If you are confused about which form of fund is best for you, you should speak with a financial expert.
Disclaimer: This blog has been written exclusively for educational purposes.