Multi-cap funds vs Flexi-cap funds: Difference between multi-cap and flexi-cap funds | Value Research Read on to figure out why flexi-cap funds were introduced and the difference between the two categories
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Multi-cap vs flexi-cap mutual funds: How are they different?

Read on to figure out why flexi-cap funds were introduced and the difference between the two categories

It was in November 2020 that the Securities and Exchange Board of India (SEBI) introduced flexi-cap funds. This came soon after the mandate for multi caps was tweaked. Earlier, multi-cap funds were allowed to invest across large, mid and small caps in any proportion. The fund manager had complete flexibility to decide the allocation across companies of different sizes. However, the new mandate of multi-cap funds requires them to invest at least 25 per cent of the portfolio in each large, mid, and small caps. The new directive drew criticism from many quarters as it seemed restrictive. And that's why flexi-cap funds were introduced - to address those concerns.

Flexi-cap funds carry the same mandate as the old multi-cap funds. By law, they are required to invest a minimum of 65 per cent in equities without any restriction on the exposure across large, mid, and small caps. They are better placed than multi-caps because the fund manager has the flexibility of investing wherever he wants to, and he can opportunistically shift the allocations between large, mid, and small caps. So that's an advantage with flexi-cap funds. They provide an opportunity for investors to invest across market caps and mitigate the risk of concentration.

But even flexi-caps have a constraint. When they get bigger, more than Rs 10,000 crore, it becomes difficult for the fund manager to find opportunities in the small-cap space. That's because even a 10 to 15 per cent allocation becomes quite meaningful. In that sense, flexi caps with smaller assets under management (AUM) are even better.

Given the same, investing in a flexi-cap fund can be a disadvantage for someone looking for significant exposure to small caps at all times and large and mid caps within the same fund. That's when one must opt for a multi-cap fund.

Also read:

How flexi is your multi?

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