Explainer: What is the difference between a multi cap and flexi cap fund?
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Mutual fund investors looking for diversification have two main options: flexi-cap and multi-cap funds. Both these options aim to invest across different market capitalizations but do so to varying degrees.
Three years ago, Sebi introduced a distinct category for multi-cap funds to ensure diversified exposure across large-cap, mid-cap, and small-cap stocks. Unlike flexi-cap funds, which also invest across market-cap segments but maintain a large-cap bias, multi-cap funds are mandated to allocate a minimum of 25% to each category.
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What are these funds?
Multi cap funds: Around minimum 75% of total assets are invested in equity and equity related instruments. The new mandate of 25% each in large cap, mid cap, and small cap stocks came out in September 2020.
Flexi cap funds: A minimum of 65% of total assets are invested in equity and equity related instruments. The category was introduced in November 2020.
How are these funds different?
The key difference between multi-cap and flexi-cap funds lies in their market-cap allocations.
Multi cap funds have to invest minimum 25% each in large-, mid-, small-cap stocks. These funds are more aggressive and volatile than flexi-cap funds because of minimum allocation of 25% each in mid and small cap stocks.
Flexi
