Flexicap vs. Multicap Mutual Funds
Mansi Varia
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For majority of investors choosing a diversified fund for long term investing is an appropriate investment option. The growth of mutual fund industry has enforced SEBI to clearly specify specific features even within diversified mutual funds category.
SEBI has defined distinct characteristics for flexicap and multicap mutual funds, ensuring clarity for investors in their fund selection. While both categories invest across market capitalizations, their mandates differ significantly, influencing their risk-return profiles and suitability for investors.
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What are Flexicap and Multicap Funds?
1.?? Flexicap Funds:
o??? Flexicap funds have the freedom to invest across large-cap, mid-cap, and small-cap stocks in any proportion.
o??? The fund manager has complete discretion to dynamically adjust the portfolio based on market conditions and opportunities.
o??? This flexibility makes these funds highly adaptive and suitable for capturing market trends.
2.?? Multicap Funds:
o??? Multicap funds are bound by SEBI’s mandate to allocate a minimum of:
§? 25% in large-cap stocks,
§? 25% in mid-cap stocks, and
§? 25% in small-cap stocks.
o??? The remaining 25% offers flexibility, but the mandated allocation ensures a balanced exposure across market segments.
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Key Differences
Which Investors Should Choose What?
1.?? Flexicap Funds:
o??? Who Should Invest:
§? Investors seeking diversification without rigid allocation constraints.
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§? Those who prefer dynamic asset allocation based on market trends.
§? Suitable for moderately conservative to moderately aggressive investors.
o??? Why:
§? The flexibility allows fund managers to reduce exposure to volatile segments during market downturns, potentially lowering risk.
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2.?? Multicap Funds:
o??? Who Should Invest:
§? Investors looking for balanced exposure to all market segments.
§? Those with a higher risk appetite willing to embrace small-cap volatility for potentially higher returns.
§? Suitable for long-term investors aiming for wealth creation.
o??? Why:
§? The mandated allocation ensures consistent exposure to small caps, which can deliver substantial growth over the long term.
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Things to Consider Before Investing
1.?? Risk Appetite:
o??? Multicap funds carry higher inherent risk due to small-cap exposure, while flexicap funds can adjust to reduce risk.
2.?? Investment Horizon:
o??? Both funds are ideal for long-term goals (5+ years) but multicap funds may require a longer horizon due to small-cap volatility.
3.?? Market Conditions:
o??? Flexicap funds may outperform in uncertain markets due to their adaptability, whereas multicap funds can excel in bullish markets when small caps perform well.
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Conclusion
Both flexicap and multicap funds offer unique advantages catering to different investor needs. Flexicap funds provide adaptability and lower risk, making them suitable for cautious investors. On the other hand, multicap funds are ideal for those with a higher risk tolerance seeking balanced market exposure. By understanding your financial goals, risk tolerance, and investment horizon, you can make an informed choice between these two versatile fund categories.