Equity-oriented mutual funds could be an important part of your portfolio, if you are looking to build wealth for the long term. They help in beating inflation and can help you achieve your goals provided you are ready to assume some risk and earn market-linked returns.
Within the equity-oriented category, there are various sub-categories of mutual funds. Amongst them are Multi-cap and Flexi-cap Funds. While both sub-categories of funds invest in companies across market-cap, the manner in which they can invest are different. Let us understand in detail.
What is Multi-cap Fund:
This equity-oriented fund invests in diversified portfolio across large, mid-cap, and small-cap companies. As per regulation, a Multi-cap Fund has to invest at least 75% of its total assets in equities, in the following manner:
- Minimum 25% in large-cap companies
- Minimum 25% in mid-cap companies
- Minimum 25% in small-cap companies
Complete Meal = Starters + Main Course + Desserts
Diversified Portfolio = Large Cap + Mid Cap + Small Cap funds
For example, it has large cap stocks ICICI, SBI, Maruti Suzuki and Bandhan Bank. Midcap stocks like NHPC, Relaxo Footwears, TVS motor company. The smallcap funds would be PVR, V mart, Bluestar and Timken India
Multi-cap funds comprise companies with different market capitalizations such as large-cap, mid-cap, and small-cap stocks. Multi-cap funds have to invest in large-cap, mid-cap, and small-cap companies in equal proportion. Investors get to invest in different market capitalization stocks by investing in a single fund.
Benefit by stability of large-caps + The high-return potential of mid-cap and small-caps.
Who should invest in multi cap funds?
You can invest in multi cap funds to diversify your investment in different category of the stocks. You have stable portfolio such as large cap or nifty index funds in your list, you can add one multi-cap fund to get better returns by investing in mid-cap and small-cap companies.
What is the difference between multi cap and mid-cap?
Mid cap funds invest only in mid-cap stocks in the market. Multi cap funds invests in all the sectors for better diversification.
Quant Active Growth Fund :
This fund holdings includes ITC, SBI, Vedanta, Adani Enterprise and Fortis healthcare. The expense ratio is very less 0.53 in this category.
Nippon India Multi Cap Growth :
This fund holdings includes HDFC Bank, ICICI bank, Infosys, L&T, Kennametal Ltd and Indian Hotels Co Ltd.
SBI Multicap Growth Direct Plan:
This fund holdings includes ICICI, Page Industries, PVR, SBI, TVS and K.P.R. Mill Ltd . The expense ratio is 0.57 and it is offered from well-known SBI fund house.
HDFC Multi Cap Fund – Direct Plan :
This fund holdings includes ICICI, HDFC bank, Infosys, TCS, UltraTech and Reliance Industries Ltd . The expense ratio is 0.45.
Kotak Multicap Fund – Direct Plan :
The fund has 97.77% investment in domestic equities of which 45.02% is in Large Cap stocks, 20.52% is in Mid Cap stocks, 25.39% in Small Cap stocks. This fund holdings includes Maruti Suzuki, ICICI, SBI bank, ITC, Federal Bank and Bank of Baroda.
What is Flexi-cap Fund :
Flexi-Cap Fund invests across companies of any market capitalizations. That is, large-caps, mid-caps, and small-caps companies. Flexi cap funds invest in different market capitalization stocks as well as different sector or industry stocks. A Flexi-cap Fund has to invest a minimum of 65% of its assets in equity and equity-related instruments. Unlike Multi-cap funds, there are no minimum threshold for investments in Large, Mid and Small cap, the exposure can be managed dynamically.
Flexi-cap funds are same as Multi-Cap funds with flexibility and freedom to fund manager
A Flexi-cap Fund provides its fund manager better flexibility to explore investment opportunities across large-cap, mid-cap, and small-cap stocks, by pursuing both value and growth. The portfolio of Flexi cap funds should be rebalanced according to the market conditions.
Benefit of better returns by the fund flexibility and freedom to explore investment.
What is the difference between Multicap and Flexicap fund?
25% investment is required in all three multi cap – large, mid, and small cap. There is no fixed allocation investment rule in Flexi Cap. There is no investment limit in Flexi Cap across all three caps. In Flexi cap, 65% investment is required to be in equities. Fund managers can make an allocation to equities as per the requirement.
Who should invest in Flexi cap funds?
In case you have large cap or nifty index fund along with small cap fund in your portfolio, you can add one more flexi-cap fund in your list to get better returns by actively managed flexi cap funds.
To conclude, investors who already investing in large cap funds to get the taste of small cap funds get started with multi cap funds. Investors who already investing in large cap and small cap funds to get better returns get started with flexi cap funds in their portfolio.
New investor who want to start mutual funds investment, start with Multi-cap funds. Multi-Cap funds provides measured risk by investing in large cap companies.
Top FlexiCap funds are ,
- HDFC Flexi Cap Fund – Growth
- SBI Flexi Cap Fund – Growth
- Kotak Flexi cap Growth Direct Plan
- UTI Flexi Cap Fund – Growth
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