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If you are planning to invest in mutual funds, it is common to assume that Multi cap and Flexi cap funds are similar. However, these mutual funds differ in investment approach, asset allocation and objectives. In this article, we cover the definitions, key differences and how to choose the right one for your financial goals.
Market capitalisation or MCAP refers to a company’s total value based on its current stock price and its outstanding shares. A company is categorized into different market caps to help investors easily understand a company’s size, stability, and risk profile. SEBI defines market capitalisation categories based on company rankings by full market capitalisation, the categories are:
Market Capitalisation Category
Company
Large – Cap
1st to 100th Company
Mid – Cap
101st to 250th Company
Small – Cap
251st Company onwards
A multi-cap fund is a type of mutual fund scheme that invests its corpus amount in a portfolio containing equity and equity-related stocks of companies with different market capitalisations. These types of schemes carry more risk than large-cap schemes, which primarily invest in large companies.
As per SEBI, multi-cap funds are required to invest a minimum of 75% of total assets in equity, with a mandatory minimum of 25% each in large-cap, mid-cap, and small-cap companies.
The objective of a multi-cap fund is wealth creation over long term; it is preferred by investors who have a moderate risk tolerance and a long-term investment horizon.
A flexi-cap fund is an open-ended equity mutual fund that invests in companies of any market capitalisation, providing greater flexibility and diversification. Fund managers can adjust their portfolio based on market conditions, offering investors the potential for varied returns.
As per SEBI, these types of funds are required to have a minimum allocation of 65% of total assets in equity and equity-related instruments.
The primary objective of a flexi cap fund is to offer investors the opportunity to grow their investments by adapting to changes in market conditions and investing in the best opportunities available at a given time.
To understand the difference between flexi cap vs multi cap, consider the following table highlighting the key differences between both mutual funds:
Feature
Flexi Cap Fund
Multi Cap Fund
Meaning
An open-ended equity mutual fund that can invest in equity and equity-related instruments without any restrictions of market cap.
An equity mutual fund that invests across large-cap, mid-cap, and small-cap stocks, creating a diversified portfolio.
Equity Exposure
Minimum 65% in equity and equity-related instruments.
Minimum 75% in equity and equity-related instruments.
Market Cap Allocation
No fixed allocation, the fund manager can adjust between large-, mid-, and small-cap.
Fixed allocation: at least 25% in large-cap, mid-cap, and small-cap stocks.
Fund Manager Discretion
The manager has full discretion to invest across large, mid, and small caps without fixed allocation limits.
The fund manager has limited flexibility as they have to follow a SEBI-mandated allocation (25% /25% /25%) across each market cap.
Risk Management
Varies based on strategy
Generally higher small/mid-cap exposure increases volatility.
Portfolio Composition
Actively managed, with allocations shifting between large, mid, and small caps based on opportunities.
Consistent exposure to all three market cap categories, with a fixed percentage allocated to each.
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Both multi-cap funds and flexi cap funds are taxed as equity-oriented schemes. The taxation rules are based on the holding period and dividend earnings. The tax rates apply to both funds as follows:
Type of Tax
Tax Rate
Short Term Capital Gains (STCG) – less than 12 months
20%
Long Term Capital Gains (LTCG) – more than 12 months
12.5% above INR 1.25 lakh
Income from dividends, classified as Income Distribution-cum-Capital Withdrawal (IDCW) options is added to your income and taxed at your slab rate. TDS is applicable at 10% if total dividends from mutual funds exceed INR 10,000 in a financial year (effective FY 2025-26).
Whether you choose between Multi-cap fund and Flexi-cap funds, you have to first assess your risk tolerance, investment horizon, and whether you prefer active management or stable diversification. Here are some of the key reasons to choose these funds:
As an investor both Flexi cap and Multicap funds offer exposure equity and equity-related instruments. Both of these mutual fund schemes work differently and have different investment objectives. Understanding the difference between Flexi-cap and multi-cap funds helps you make well-informed investment decisions.To make your finances and investments seamless and accessible, open a new bank account online with DBS Bank. Simply download the DBS digibank app and start using your savings account within a few minutes. Access more than 250+ banking services right from the app to manage your financial needs.
Disclaimer: The information provided in this article is for general informational purposes only. For specific guidance or details, please consult with your Relationship Manager or a relevant expert.
