Flexi Cap Vs Multi Cap Funds: Long-term investment possibilities often exist in the stock marketplace. What one needs is the flexibility to manoeuvre funds as and when bargains get accessible. Multi-Cap mutual funds and Flexi-Cap mutual fund schemes are precisely meant to make use of such possibilities. Both of these schemes have a big canvas to invest across big-cap, mid-cap and smaller-cap stocks but with an essential distinction. Many investors want to know distinction involving flexicap and multicap funds and some are confused if flexi cap and multi cap are the identical?
Multi-Cap funds have been in existence for a extended time although Flexi-Cap funds have been introduced last year in November 2020. While Multi-Cap funds have been permitted to invest a minimum of 25 per cent across big and mid-smaller caps, there is no such mandate for Flexi-Cap funds. “A flexicap fund has the freedom to invest in proportion of the portfolio in any market cap without restriction. A multicap fund on the other hand will need to hold a minimum of 25% each in large, mid and small caps,” says Aashish Somaiyaa, CEO at White Oak Capital.
Do flexi-cap funds have a specifc advnatage when marketplace sees a major correction? “When we talk about multi cap funds, in small and mid cap companies, exposure cannot go below 25 per cent. That means even if the market crashes, still the fund manager is obligated to remain invested atleast 25 per cent of the fund corpus whereas that’s not the case with Flexi cap funds. The fund manager can go down to 0 per cent also. So, in nutshell, the market capitalization of the company where a fund manager is investing plays a critical role for multi caps where as in Flexi caps it doesn’t matter. Flexi cap means the fund manager can invest whatever per cent in whatever company,” informs Rachit Chawla, CEO & Founder, Finway FSC.
Of late, numerous new Flexi-Cap funds have been launched by the fund homes. While numerous Multi-Caps have been converted into Flexi-Caps. But, if you are an current investor of a Multi-Cap fund, will a conversion support? “Given that very large corpus multicap funds which held 70-80% of their portfolio in large caps due to their large AuM size and due to the underperformance of small and midcaps successively from 2018 till late 2020, have converted themselves into flexi cap funds; it is now unrealistic to expect those flexi cap funds to actually exercise the flexibility of the flexicap category. One can expect those large corpus flexi cap funds to remain more or less quasi large cap in nature,” says Somaiyaa.
Although, Flexi-Cap funds have provided the freedom to fund managers to be versatile, catching the uptrend in any marketplace-cap segment early-on is not an quick job often.
So, what really should current Multi-Cap investors do? “Any long term investor would do well to invest and remain invested in a genuine MultiCap Fund as per current regulatory definition i.e. a minimum of 25% each in large, mid and small market cap companies. There will be cycles when small and midcaps don’t do well and that’s the nature of the beast but anyone remaining invested over 5-10 years will find that there is larger alpha potential in small and midcap segments of the market and such MultiCap Funds will tend to outperform FlexiCap Funds,” informs Somaiyaa.
The choice to invest in Multi-Cap or Flexi-Cap schemes really should not be based on the present marketplace predicament rather on your personal danger profile and general portfolio building. “ There is no thumb rule as to which is right and which is wrong. Everything is linked to the market ultimately. The customer or the investor needs to understand the investor’s objective standpoint before actually taking a decision,” says Chawla. Whichever fund you pick out based on the fund manager’s extended term constant overall performance, hyperlink them to your extended term aim to reap the rewards.