Multi-cap vs flexi-cap funds

Summary: Flexi-cap funds have the freedom to go anywhere. In practice, 65 per cent ends up in large caps. Multi-cap funds are forced to spread wider, and that constraint has produced better returns and better risk-adjusted outcomes since 2020.

Summary: Flexi-cap funds have the freedom to go anywhere. In practice, 65 per cent ends up in large caps. Multi-cap funds are forced to spread wider, and that constraint has produced better returns and better risk-adjusted outcomes since 2020. Before getting into which category wins between multi-cap and flexi-cap funds, it helps to understand why the comparison exists. Until a few years ago, multi-cap funds had the freedom to invest across market capitalisation without allocation rules, often tilting towards large caps. That changed in late 2020 when SEBI mandated at least 25 per cent each in large-, mid- and small-cap stocks. This structured approach limited flexibility, prompting the creation of flexi-cap funds. Flexi-cap funds retain the original ‘go-anywhere’ mandate, allowing fund managers to allocate freely across market caps. Today, the divide is clear: one is rule-bound, the other unconstrained. Where they meet and diverge The two categories look similar on the surface. Expense ratios are nearly identical, and sector preferences overlap, with financials, industrials and consumer discretionary dominating both. The difference lies in allocation. A flexi-cap fund operates with genuine discretion. They can allocate 100 per cent of the corpus to large caps or shift heavily to smaller companies. Multi-cap funds, in contrast, must maintain at least 25 per cent each in larg