If you are thinking about investment, the word “mutual fund” is the first thing that comes to mind. Mutual funds have recently become a popular investment strategy. It has been a popular choice among investors at present. However, having a proper understanding and knowledge about funds, the types of mutual funds, etc. Without understanding, you cannot make a proper investment decision.
Let’s understand the Flexi-Cap and the Multi-Cap Mutual Funds.
What is a Flexi Cap?
Equity mutual funds scheme called “Flexi-Cap Fund.” These funds are open-ended dynamic equity schemes investing across large-cap, mid-cap, and small-cap stocks. A Flexi-cap fund helps investors broaden their horizons by investing in firms with diverse market capitalizations, reducing risk and volatility.
Unlike other cap funds, which only invest in equities depending on their market capitalization, Flexi-Cap funds can invest in any firm regardless of market capitalization. The fund manager evaluates the development potential of various businesses, regardless of their size, and allocates funds to various market sectors and businesses.
At least 65% of Flexi-cap funds assets should be invested in equity and equity-related investments. There is no limit on how much capital these funds can invest in large, mid, or small companies.
Any profit made within the first 12 months is considered short-term and is taxed at a fixed rate of 15%. Profits realized beyond 12 months are considered long-term capital gains and are exempt up to Rs 1 lakh per annum, with the remaining tax at a fixed rate of 10%.
Fund Manager Preference
The fund manager here has freedom while choosing between market capitalization and stocks. So depending on this, anyone can end up with 100% large and 100% small.
Market Cap Allocation
One can freely cross-market caps. There are no restrictions as such.
What is Multi-Cap?
Multi-cap funds are diversified equity funds that invest in stocks of companies with different market capitalization. The investment is made in various quantities to achieve the fund’s investment objective. The Multi-cap fund invests in equities that offer the finest balance of rapid growth, value, and risk to build wealth.
Comparing Flexi Cap vs. Multi-Cap, Multi-cap funds stock selection is dependent on the investor’s investment style, which may be either value or growth. Other measurements like the fund manager may also use the P/E ratio, EPS, and Enterprise value to verify that the portfolio comprises only high-quality firms. And as a result, if you invest in a Multi-cap fund, you will have exposure to companies of various sizes, and it will be fairly diversified.
As per the SEBI guidelines, a minimum of 75% must get allocated to equities.
The gains on multi-cap investment held for more than a year are termed as taxable capital gains. Gains of up to Rs 1 Lakh are tax-free in a year. Exceeding than Rs 1 Lakh are taxed at a rate of Rs 10%
Multi-cap funds beat pure large/mid-cap funds during a rising market since they are invested in multi-cap corporations. It happens because the underlying equities in the funds can unlock their potential and take advantage of growth prospects.
The fund managers of India’s top multi-cap funds consider market circumstances when adjusting the percentage of large-cap, small-cap and mid-cap stocks in their portfolio. However, the fund managers have restricted options for making stock selection decisions.
Flexi Cap vs. Multi-Cap, the Difference
The Multi-cap funds should follow the 25-25-25 rule, which means they need to invest 25% in large-cap companies, 25% in mid-cap companies, and 25% in small-cap companies’ stocks, placing minimum investment requirement across market cap sectors.
On the other hand, SEBI proposed a new category, the Flexi-cap fund, to provide AMC with more freedom. Flexi-cap fund will be positioned as a dynamic equity fund with no limit or partiality towards any market cap sector. Under the new category, these funds will continue to invest in the Flexi-cap fund, which gives the entire fund flexibility while investing across market cap categories.
Flexi Cap Vs. Multi-Cap, Which One Should You Opt For?
Following the SEBI mandate, there has been serious confusion between the two. The investment objective of multi-cap and Flexi-cap funds has always been similar as both invest in stocks across the various market cap. Although the Multi-cap fund offers a great diversification with the equity asset class, stock picking could be a challenge, especially for the small-cap category.
However, on the other hand, Flexi-cap funds are mandated to invest at least 65% of their assets in equity; there is no restriction in terms of market-cap exposure. It provides the fund manager complete freedom to align the portfolio with the preferred segment based on the market trends. But, if the fund manager cannot foresee the market trends appropriately, there could be a severe downside risk.
Once you have a clear understanding of Flexi Cap vs. Multi-Cap, the next step is to decide the investment scheme. Axis Mutual Fund App provides Axis Flexi Cap growth fund to generate long-term capital appreciation by investing in a diversified portfolio. You can invest through Axis Mutual Fund App. The benefit of the Mutual Fund App is that you can choose the growth plan, i.e., regular or direct, according to your investment growth.