4 days ago
Flexi-Cap vs Multi-Cap Funds: Building a Balanced Portfolio
Flexi-cap and multi-cap funds can both invest in large, mid and small companies.
However, they follow different rules.
A multi-cap fund must keep at least 25% in each of the three company-size groups.
A flexi-cap fund has more freedom to change its mix.
This means a flexi-cap fund may become more focused on large companies when its manager prefers them.
Buying another fund does not always make an investment portfolio more balanced.
For example, several funds may together put most of the money in large companies.
Investors should first check what they already own and then choose a fund that helps create the mix they want.
Multi-cap funds must hold at least 25% each in large-, mid- and small-cap companies.
Flexi-cap funds must invest at least 65% in equities but have no required market-cap split.
Adding another fund does not automatically diversify a portfolio if it increases existing concentration.
Investors should review their combined market-cap exposure before starting another SIP.
The article suggests considering roughly 50–55% large caps, 20–25% mid caps and 20–25% small caps.
- Who
- Investors choosing between flexi-cap and multi-cap mutual funds.
- What
- The article explains how the two fund categories differ and how investors can use them to build a balanced portfolio.
- Where
- Across an investor’s overall equity-fund portfolio.
- When
- Before starting a new SIP or adding another fund.
- Why
- To avoid hidden market-cap concentration and select funds according to the desired large-, mid- and small-cap allocation.
Flexi-Cap Preference
Multi-Cap Preference
Managerial flexibility
Flexi-Cap Preference
A flexi-cap fund may suit investors who want the manager to change market-cap exposure according to market conditions and valuations.
Multi-Cap Preference
A multi-cap fund has less freedom because it must maintain minimum allocations across all three market-cap segments.
Portfolio role
Flexi-Cap Preference
Flexi-cap funds may be appropriate when investors want the manager to decide where opportunities are strongest.
Multi-Cap Preference
Multi-cap funds may suit investors who want large, mid and small caps to remain meaningful parts of the portfolio.
Adding another fund
Flexi-Cap Preference
If an existing flexi-cap fund already has substantial large-cap exposure, adding another broad-market fund may not improve diversification.
Multi-Cap Preference
A multi-cap fund can provide exposure to all three segments, but its addition still needs to be assessed against the investor’s total portfolio allocation.
Key facts
- Multi-cap minimum allocation
- At least 25% each in large-cap, mid-cap and small-cap companies.
- Flexi-cap equity requirement
- At least 65% of assets must be invested in equity and equity-related instruments.
- Flexi-cap allocation freedom
- The fund manager can decide the allocation across large-, mid- and small-cap companies.
- Illustrative portfolio concentration
- A portfolio containing a large-cap fund, a flexi-cap fund with 60% large caps and a multi-cap fund can still have 70% large-cap exposure.
- Suggested large-cap allocation
- Around 50–55% of the overall portfolio.
- Suggested mid-cap allocation
- Around 20–25% of the overall portfolio.
- Suggested small-cap allocation
- Around 20–25% of the overall portfolio.
Quotes
A friend
An unnamed friend advising the hypothetical investor
“You should add a multi-cap fund as well. That will diversify your portfolio across large, mid and small cap companies.”
telegraphindia.com
Sources
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