Multi-cap vs flexi-cap: What's your strategy to invest in these funds in 2025? Check what experts say
As mutual fund investors weigh options in India’s equity space, the debate between Multi-Cap and Flexi-Cap funds is heating up. Both fund types aim to provide exposure across Large Cap, Mid Cap, and Small Cap stocks, but their regulatory frameworks and investment flexibility differ, affecting returns, volatility, and risk management.
Large cap companies comprise India’s top 100 firms, Mid Caps cover ranks 101–250, and Small Caps include the remaining smaller companies. SEBI regulations mandate that Multi-Cap funds invest at least 25% in each of these three segments, with a minimum 75% allocation to equities. Flexi-Cap funds, on the other hand, require only 65% in equities and allow fund managers complete freedom in allocation, letting them shift funds among market caps as market conditions change.
Investment consultant Amit Upadhyaya notes that this regulatory divergence has shaped investor preferences. “After SEBI introduced stricter Multi-Cap norms in 2020, many existing Multi-Cap funds rebranded as Flexi-Cap, granting managers greater flexibility,” he explains. Today, India has 41 Flexi-Cap funds with an AUM of roughly Rs 5 lakh crore, compared to 32 Multi-Cap funds totaling Rs 2 lakh crore. Popular Flexi-Cap schemes include Parag Parikh Flexi Cap, HDFC Flexi Cap, and Kotak Flexi Cap, while Multi-Cap stalwarts include ICICI Multi-Cap and Nippon Multi-Cap.
Analysing fund performance, Upadhyaya highlights key differences. “Multi-Cap funds, with mandatory exposure to volatile Mid and Small Caps, display higher risk and standard deviation,” he says. “Flexi-Cap funds, with the freedom to tilt towards Large Caps during turbulence, show lower volatility, better Sharpe ratios, and stronger alignment with benchmarks.” He adds that fund manager expertise is critical in Flexi-Cap funds, as timely allocation decisions can significantly influence returns. Multi-Cap funds, with fixed allocations, reduce human judgment risk but also limit potential gains.
Current asset allocation trends reinforce this observation. According to Upadhyaya, “Leading Flexi-Cap funds today behave largely like Large Cap funds, often allocating over 60% to the top 100 companies, while Multi-Cap funds remain bound to their 25-25-25 structure. This strategic flexibility has enabled Flexi-Cap funds to deliver stronger short-term returns, though Multi-Cap funds could benefit more during small-cap rallies.”
Past performance comparisons over one, three, and five years further emphasize the importance of diversification. “No single type of fund performs well in all market cycles,” Upadhyaya observes. “A DIY portfolio combining Large, Mid, and Small Cap funds often outperforms both Multi-Cap and Flexi-Cap funds across extended periods, highlighting the value of a tailored diversification strategy.”
Upadhyaya advises investors that informed decision-making is key. “If you are willing to actively manage your allocations, a DIY portfolio can offer superior long-term growth. Flexi-Cap funds remain a strong option for those preferring a hands-off approach, relying on skilled fund managers. Multi-Cap funds are suitable if you prefer strict, regulated exposure, though they tend to underperform relative to these alternatives.”
Ultimately, he concludes, “The choice between Multi-Cap, Flexi-Cap, or a DIY equity mix depends on investor goals, risk appetite, and willingness to actively manage allocations. Diversification and strategic flexibility drive long-term growth.” Community surveys suggest many investors prefer constructing a custom mix, echoing these insights.
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