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For the past few years, mutual funds have become popular with Indian investors. Investing in mutual funds helps you to achieve your long-term wealth creation goals. It also helps to recover from inflation over time.
Mutual funds have become an important part of the portfolio therefore you should try to understand how you can invest in them effectively. This will help you to choose the right funds and create a portfolio you desire.
When you want to invest for the long term, equity mutual funds are the first choice. These funds have various subcategories and the two main ones are Multi-cap funds and Flexi-cap funds.
Multi-cap funds invest in the portfolio of equity and stocks related to equity with a range of market capitalisation. The funds invest in large-cap, mid-cap and small-cap companies. These funds are a good choice to match your risk tolerances as every scheme invests in different percentages.
Flexi-cap fund is an open-ended and dynamic equity scheme that invests in companies with any capitalisation. It invests in large-cap, mid-cap and small-cap funds. A minimum value of 65% of the fund's total assets is invested in equity instruments.
Multi-cap funds vs Flexi-cap funds
- Multi-cap funds maintain a diversified portfolio of large-cap, mid-cap and small-cap companies.
- Flexi-cap funds invest in the companies with any market capitalization.
- In Multi-cap funds at least 75% of the scheme’s total assets are invested in equity or equity-related stocks.
- In Flexi-cap funds at least 65% of the scheme’s total assets are invested in equity instruments.
- As per SEBI, Multi-cap funds must allocate a minimum value of 25% of their portfolio to large-cap, mid-cap and small-cap companies.
- Flexi-cap funds can invest in any market cap. The funds invest in a range of capitalisation without having to follow a specific percentage.
- In Multi-cap funds the fund manager has the freedom to select stocks and market capitalizations.
- In Flexi-cap funds the fund manager has to select stock with a specified marker cap.
- The Multi-cap funds invest in large-cap, mid-cap and small-cap companies therefore are riskier than investing in large-cap funds only.
- The Flexi-cap funds invest in a range of equity securities which can result in a portfolio with a combination of stocks. This can give moderate returns and when held for the long term it can help to manage the risk associated.
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