Choosing between multicap vs flexicap funds can feel confusing, especially when markets swing between strong rallies and sharp corrections. Both multicap and flexicap funds invest across large cap, mid cap and small cap stocks, yet their allocation rules and flexibility differ significantly.
- Understanding Market Capitalisation Categories
- What Is a Multicap Fund?
- Structure of Multicap Funds
- Why Is This Structure Important?
- Who Should Invest?
- What Is a Flexicap Fund?
- How Flexicap Funds Work
- Who Should Invest?
- Quick Comparison: Multicap vs Flexicap Funds
- Taxation on Multicap and Flexicap Funds
- Conclusion
- FAQs
While multicap funds follow a structured allocation with mandatory exposure to each market capitalisation segment, flexicap funds give the fund manager the freedom to shift allocations based on market conditions. Understanding how these two categories differ in terms of structure, risk and suitability can help you make a more informed investment decision.
Understanding Market Capitalisation Categories
Before comparing multicap vs flexicap funds, let us quickly understand company classifications:
- Large-cap companies: Top 100 companies by full market capitalisation
- Mid-cap companies: Ranked 101 to 250
- Small-cap companies: Ranked 251 onwards
These rankings follow SEBI’s categorisation circular dated October 6, 2017.
(Source: SEBI)
What Is a Multicap Fund?
A Multicap Fund is a diversified equity mutual fund that maintains a balanced exposure across companies of various sizes. Under SEBI regulations, these funds must invest at least 75% of their total assets in equity and equity-related instruments. To ensure a truly diversified portfolio, the fund manager is required to allocate a minimum of 25% each to large-cap, mid-cap, and small-cap stocks.
Structure of Multicap Funds
| Allocation Component | Minimum Requirement |
|---|---|
| Large-cap | 25 percent |
| Mid-cap | 25 percent |
| Small-cap | 25 percent |
| Flexible portion | 25 percent |
Why Is This Structure Important?
The structure ensures:
- Diversification across segments
- Mandatory exposure to mid and small caps
- Relative stability from mandatory large-cap exposure, though overall volatility depends on market conditions.
Who Should Invest?
Multicap funds may suit investors who:
- Want built-in diversification
- Have a long-term horizon
- Can tolerate high risk
- Want exposure to mid and small caps without selecting them separately
(Source: SEBI)
What Is a Flexicap Fund?
A flexicap fund also invests across large, mid and small companies. However, unlike multicap funds, it has no fixed allocation rule.
As per SEBI:
At least 65 percent of assets must be in equity. There is no requirement to maintain 25 percent in each segment.
How Flexicap Funds Work
While flexibility allows better defensive positioning during market stress, outcomes depend heavily on the fund manager’s allocation decisions. The fund manager dynamically shifts allocation depending on market conditions.
For example:
- During uncertainty, allocation may increase towards large caps
- During growth phases, exposure may rise towards mid and small caps
Who Should Invest?
Flexicap funds may suit investors who:
- Do not want to time markets
- Prefer professional allocation decisions
- Have a long-term investment horizon
- Can handle high risk
(Source: SEBI, Value Research)
Quick Comparison: Multicap vs Flexicap Funds
| Feature | Multicap Funds | Flexicap Funds |
|---|---|---|
| Minimum equity allocation | 75% equity overall | 65% equity overall |
| Large-cap exposure | Minimum 25% | Flexible |
| Mid-cap exposure | Minimum 25% | Flexible |
| Small-cap exposure | Minimum 25% | Flexible |
| Allocation flexibility | Moderate | High |
| Volatility | Moderately High due to fixed small-cap exposure | Depends on fund manager allocation |
| Behaviour in corrections | Must maintain 25% in each segment, limiting defense | Can reduce small-cap exposure during volatility |
| Suitable for | Diversified aggressive investors | Investors preferring dynamic allocation |
(Source: Value Research)
Taxation on Multicap and Flexicap Funds
Since both Multicap and Flexicap funds invest at least 65% of their assets in Indian equities, they are treated as equity-oriented mutual funds for tax purposes.
- Short-Term Capital Gains (STCG): If you sell your units within one year of purchase, the gains are taxed at a flat rate of 20%.
- Long-Term Capital Gains (LTCG): If you sell your units after one year, gains exceeding ₹1.25 lakh in a financial year are taxed at 12.5% without indexation benefits.
- Dividends: Any income distributed via dividends is added to your total income and taxed according to your applicable income tax slab.
(Source: Cleartax)
Conclusion
The debate around multicap vs flexicap funds does not have a one size fits all answer. Both categories invest across market capitalisations, but their allocation mandates and flexibility create meaningful differences in risk and behaviour across market cycles.
Multicap funds follow a structured approach with mandatory exposure to large, mid and small cap stocks. This ensures built-in diversification across segments at all times. Flexicap funds, on the other hand, offer the fund manager the flexibility to increase or reduce exposure depending on market conditions. This allows for a more dynamic strategy.
Match your choice with your financial goals, risk appetite and investment horizon. Equity investing is a long term journey. Stay patient, stay consistent and let compounding do the work.
Disclaimer: Investment in the securities market is subject to market risks. Read all the related documents carefully before investing. This content is purely for information purpose only and in no way is to be considered as an advice or recommendation. The securities are quoted as an example and not as a recommendation. Investors are requested to do their own due diligence before investing.
SEBI Reg No.: Broking – INZ000240532, Research Analyst – INH000020086, Depository Participant – IN-DP-416-2019, Depository Participant Number: CDSL – 12088800, NSE (90165), BSE (6707), MCX (57525), NCDEX (1315), MSEI (85300).
Registered Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019.
For complete Terms & Conditions and Disclaimers, visit https://www.paytmmoney.com.
