Which Category Should I Choose: Flexi Cap, Multi Cap, or Large & Mid Cap?
When deciding between Flexi Cap, Multi cap, and Large & Mid Cap funds, here’s a breakdown to help you choose the right category based on your risk appetite and investment goals:
In 2017, SEBI introduced the Large & Mid Cap category for mutual funds. This category requires a fund to invest at least 35% of its money in large companies and 35% in medium-sized companies. Some popular funds, like Invesco India Large & Mid Cap Fund and Kotak Equity Opportunities Fund, are now in this category.
Flexi-cap funds also invest in large, mid, and small-cap companies. However, they have no strict rules about how much to invest in each category. This means the fund manager can move money based on market trends. For example, during tough times, more money can go into stable large-cap companies, and when markets are booming, the focus can shift to mid and small-caps for growth. The Flexi Cap category, previously known as Multi Cap until September 2021, gives fund managers complete freedom to invest in companies of any size. There is no limit on how much can be invested in large, mid, or small companies. Some big funds in this category include the Bandhan Flexi Cap Fund and Edelweiss Flexi Cap Fund.
Multi-cap funds invest in three types of companies: large-cap (big companies), mid-cap (medium-sized companies), and small-cap (smaller companies). SEBI, the market regulator, requires these funds to invest at least 25% in each category. This rule gives them balance and spreads the risk. However, since they must always have a portion in mid-cap and small-cap companies, these funds may be riskier during market downturns but can give high returns in good market conditions. In 2020, some funds in this category included the Invesco India Multicap Fund and the Axis Multicap Fund.
| Basis | Large & Mid Cap | Flexi Cap | Multi Cap |
| Risk | Moderate (due to allocation restrictions) | High (fund manager has the freedom to allocate) | Moderate to High (due to small-cap exposure) |
| Returns | Predictable, stable growth | Higher potential returns with higher volatility | Balanced, but can be volatile due to small-cap exposure. |
| Who Should Invest? | Suitable for investors seeking moderate risk and planning for long-term goals (5+ years), with a balanced Large and Mid-Cap exposure. | It is ideal for investors who trust fund managers to make allocation decisions based on market conditions and have long-term goals (6+ years). | It best suits investors desiring proper multi-cap exposure with compulsory representation across all market caps who manage their asset allocation accordingly. (6+ years). |
| Definition | Invests at least 35% each in large-cap and mid-cap companies as per SEBI rules. | Invests across large, mid, and small-cap companies with no fixed allocation rules | Invests across large, mid, and small-cap companies, with at least 25% allocation to each, as per SEBI rules. |
Key Differences and Choosing the Right Fund:
Which One Should You Choose?
- Large & Mid Cap Funds: Choose if you want a relatively lower risk, steady growth option with a long-term horizon.
- Flexi Cap Funds are ideal if you’re confident in the fund manager’s ability to allocate across various market caps and are comfortable with higher risk.
- Multi-cap funds are best if you want a predefined, balanced exposure to all three market caps and have a moderate risk appetite.
When you invest in mutual funds, choosing the right one can be tricky because there are many options. A mutual fund distributor helps you pick the best funds for your goals and risk level. They know how to explain the different categories like Large & Mid Cap, Flexi Cap, and Multi-Cap and guide you on creating a balanced portfolio. By working with a professional mutual fund distributor, you can avoid mistakes and make smart investment decisions. Getting expert help to ensure your money grows safely is always a good idea.
