Investing in mutual funds is a smart way to grow your wealth, but with so many options available, choosing the right fund can be confusing. Among the most talked-about categories today are multi cap funds and flexi cap funds. While both belong to the equity fund category, they follow different investment strategies and suit different kinds of investors.
In this article, we will explore the concept of multicap vs flexicap within the broader landscape of different types of mutual funds, understand how each fund type operates, compare their key differences, and help you determine which one aligns best with your financial goals.
What Are Multi Cap Mutual Funds?
Multi-cap mutual funds are a type of equity fund that invests in companies across all market capitalisations, large-cap, mid-cap, and small-cap stocks. However, there’s a specific rule set by the Securities and Exchange Board of India (SEBI) for these funds.
SEBI Mandate:
As per SEBI’s 2020 guidelines, multi cap funds must invest:
- At least 25% in large-cap stocks
- At least 25% in mid-cap stocks
- At least 25% in small-cap stocks
This rule ensures a minimum diversified exposure to all three market segments. The remaining 25% can be allocated at the fund manager’s discretion.
Who Should Invest?
Multi cap funds are ideal for investors looking for:
- A balanced exposure to various market caps
- Moderate risk with growth potential
- A medium to long-term investment horizon
These funds offer stability through large-cap stocks and growth potential through mid and small-cap companies. If you’re someone who wants a good mix without actively managing your portfolio, multi-cap funds are worth considering.
What Are Flexi Cap Mutual Funds?
Flexi cap mutual funds, as the name suggests, are flexible in their approach. They can invest across large-cap, mid-cap, and small-cap stocks without any minimum allocation requirement. The fund manager decides the asset allocation based on market conditions, valuation opportunities, and the fund’s strategy.
Key Features:
- No rigid allocation mandate unlike multi cap funds.
- Entire portfolio can be in large-cap, mid-cap, or small-cap, depending on market outlook.
- Offers high flexibility for fund managers to optimise returns.
Who Should Invest?
Flexi cap funds are suitable for investors who:
- Want professional fund management with market-driven strategies
- Have a higher risk appetite
- Are looking for potentially higher returns during market upcycles
Because these funds can swiftly move across market caps, they can take advantage of short-term opportunities and navigate market volatility better.
Multi Cap vs Flexi Cap: Key Differences Explained
Understanding the flexi cap vs multi cap debate is easier with a direct comparison:
| Feature | Multi Cap Funds | Flexi Cap Funds |
| SEBI Mandate | Minimum 25% each in large, mid, and small-cap | No fixed allocation |
| Flexibility | Limited due to regulatory structure | High, based on market conditions |
| Risk Level | Moderate due to balanced allocation | Can be high or low depending on allocation |
| Fund Manager Freedom | Restricted to meet allocation norms | Full freedom in asset allocation |
| Suitability | Ideal for balanced investors | Ideal for active, growth-focused investors |
Risk-Return Profile: Which One Performs Better?
When comparing multicap vs flexicap, the key differentiator lies in risk and returns.
- Flexi Cap Funds tend to perform better during bullish markets. Fund managers can move more funds into mid and small-cap stocks, which usually outperform large-cap stocks in rising markets.
- Multi Cap Funds may lag slightly in such cycles because they are required to maintain a fixed 25% allocation across segments, regardless of market opportunities.
However, in bearish markets or when small-cap stocks underperform, multi cap funds might provide better downside protection due to their diversified and regulated approach.
So, Flexi Cap = Higher returns + higher risk;
Multi Cap = Balanced returns + lower risk.
Ideal Investor Profile for Multi Cap vs Flexi Cap
To choose the right fund, match your investment profile with the fund’s characteristics:
Multi Cap Funds:
- Age Group: 30-55 years
- Investment Style: Conservative to moderate
- Horizon: Medium to long term (5+ years)
- Preferred Mode: SIP is recommended for rupee cost averaging
- Risk Appetite: Medium
Flexi Cap Funds:
- Age Group: 25-45 years
- Investment Style: Aggressive
- Horizon: Long term (7+ years)
- Preferred Mode: SIP and Lumpsum during market corrections
- Risk Appetite: High
Understanding your goals, risk tolerance, and investment horizon can help you choose between multi cap funds and flexi cap funds wisely.
Taxation Rules for Multi Cap and Flexi Cap Funds
Tax rules for both these fund types fall under the umbrella of equity mutual funds, so taxation is similar.
- Short-Term Capital Gains (STCG): If sold within 12 months, gains are taxed at 15%.
- Long-Term Capital Gains (LTCG): If sold after 12 months, gains above ₹1 lakh are taxed at 10% without indexation.
These rules apply uniformly to both multi cap funds and flexi cap funds, making taxation a non-factor in fund selection.
Which Is Better in Volatile Markets?
During market volatility, having the freedom to quickly reallocate capital becomes an advantage.
Flexi Cap Funds:
- With the support of stock advisory services, fund managers can lower exposure to small or mid-cap stocks during a market downturn and shift investments to more stable large-cap stocks for better risk management.
- This flexibility can protect your money and give better returns than fixed funds during uncertain times.
Multi Cap Funds:
- The rigid allocation structure can be a limitation during volatile phases.
- For example, even if small caps are underperforming, the fund must maintain a 25% allocation, which can drag down returns.
Multi Cap vs Flexi Cap Returns: Historical Performance Overview
Over the past three years (2021-2024), multi-cap funds have given an average return of about 21.38%, while flexi-cap funds have returned around 17.97%. During this time, nine multi-cap funds were available. Among them, Nippon India Multi Cap Fund performed the best with a return of 28.03%, followed by ICICI Prudential Multicap Fund at 22.81%. On the lower side, Aditya Birla Sun Life Multi-Cap Fund delivered the least with 18.44%.
In comparison, about 27 flexi-cap funds were active during the same period. The top performer was JM FlexiCap Fund, which gave a return of 27.85%, followed by HDFC Flexi Cap Fund with 26.41%. The lowest performer among flexi-cap funds was UTI Flexi Cap Fund, with a return of just 7.83%.
Source: Economic Times
While past performance doesn’t guarantee future results, it offers a glimpse into how these funds behave in different cycles.
| Rising phase | Flexi-cap funds | Multi-cap funds |
| April 30 2021 to October 31, 2021 | 24.10% | 28.50% |
| February 28, 2023 to July 31, 2023 | 18.00% | 20.60% |
| January 31, 2024 to April 30, 2024 | 5.70% | 5.40% |
| May 31, 2024 to September 30, 2024 | 16.60% | 17.50% |
| Falling phase | ||
| March 31, 2022 to June 30, 2022 | -11.00% | -11.20% |
| November 30, 2024 to February 28, 2025 | -13.80% | -15.50% |
Source: Valueresearch
How to Choose Between Multi Cap and Flexi Cap Funds?
Use this simple decision-making checklist:
Choose Multi Cap Funds if:
- You prefer regulated diversification
Multi cap funds invest across large, mid, and small caps, offering balanced diversification as mandated by SEBI for risk management. - You’re a beginner or moderately risk-tolerant
These funds are ideal for investors with limited experience or medium risk appetite, offering exposure to all market segments safely. - You want to avoid timing the market
Multi cap funds automatically balance investments across segments, saving you from the challenge of predicting market highs and lows. - You seek consistency in returns
With exposure to different market caps, these funds help reduce volatility and aim for stable, long-term performance across market cycles.
Choose Flexi Cap Funds if:
- You trust a fund manager’s judgement
Flexi cap funds rely on the fund manager’s skill to dynamically shift between market caps based on evolving opportunities. - You want to capitalise on market opportunities
These funds allow flexible allocation, helping capture emerging trends or sectoral momentum as market conditions change without restriction. - You have a long investment horizon
Flexi cap funds perform better over time, benefiting from market cycles if held for five years or more consistently. - You can stomach some volatility for higher potential gains
These funds may take bold bets, leading to short-term ups and downs, but aim for superior long-term wealth creation.
Conclusion
Both multi cap and flexi cap mutual funds come with distinct advantages. To enjoy the full benefits of mutual funds, it’s essential to align your choice with your investment goals, risk tolerance, and desired portfolio flexibility. Choose multi cap funds if you prefer balanced exposure and steady performance. Opt for flexi cap funds if you’re comfortable with dynamic allocation and aiming for higher returns.
Ultimately, both fund types offer many benefits, including diversification, professional management, and long-term growth potential, making them smart options for retail investors who prefer simplicity over direct stock picking or the mutual fund vs ETF debate.
FAQs
What is the main difference between Multi Cap and Flexi Cap funds?
The key difference is in asset allocation. Multi cap funds have a SEBI-mandated allocation (25% each in large, mid, and small caps), while flexi cap funds have no fixed allocation and give the fund manager full flexibility.
Which fund type is better for beginners?
Multi cap funds are more suitable for beginners as they provide balanced exposure across the market and do not rely heavily on timing or fund manager discretion.
Are both Multi Cap and Flexi Cap equity mutual funds?
Yes, both are equity mutual funds. They invest in shares of listed companies across various market caps but differ in how they allocate funds among those companies.
Can I switch from Multi Cap to Flexi Cap?
Yes, you can switch between the two. This can be done via a fund switch option if your platform allows it or by redeeming units from one and reinvesting in another.
Which has better returns – Multi Cap or Flexi Cap?
Multi-cap and Flexi-cap funds both could offer good returns, but their risk profiles differ. Multi-cap funds are more volatile due to mandatory small and mid-cap exposure, while Flexi-cap funds offer flexibility, stability, and suit moderately risk-tolerant investors better.
What are the risks associated with these funds?
Both multi-cap and flexi-cap funds carry market risks, but flexi-cap funds have some extra challenges. Their performance depends more on the fund manager’s decisions, which may not always be right. If too much is invested in one type of stock, like small or mid-caps, the fund can become risky. Multi-cap funds are more balanced by rule, but they also invest in small-caps, which can hurt returns when markets fall.
Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
