SIP Investment: Unveiling the Best Choice Between Multi Cap and Flexi Cap Funds for Long-Term Growth

If you are considering investing in mutual funds in the new year, you might want to explore the option of multi-cap and flexi-cap funds. According to the Association of Mutual Funds in India (AMFI) website, multi-cap funds have delivered returns of up to 44.11% in the last year, while flexi-cap funds have provided returns of up to 43.13%.

Title: Returns until January 4, 2024, are Pending – Explore the Differences between Multi-Cap and Flexi-Cap Funds

Both returns are pending until January 4, 2024. By investing through SIP over an extended period, you can potentially gain significant returns from these funds. Let’s delve into the differences between these two mutual fund categories:

What are Multi-Cap and Flexi-Cap Funds?

Multi-cap funds encompass a diverse range of mutual funds, including small-cap, mid-cap, and large-cap companies. When investing in this category, investors allocate 25% of their funds to small-cap companies, 25% to mid-cap companies, and 25% to large-cap companies. The fund manager has the flexibility to distribute this allocation based on their discretion.

On the other hand, flexi-cap funds provide flexibility to the fund manager to allocate funds to small, mid, or large-cap companies based on their market analysis and preferences. In this category, the fund manager is not bound by predetermined allocations to specific categories.

Which is Suitable for Me – Multi-Cap or Flexi-Cap Funds?

If you are looking for a diversified investment across all sizes and sectors through a single fund, multi-cap mutual funds might be a suitable option. In contrast, flexi-cap funds provide the flexibility for the fund manager to choose between small, mid, or large-cap stocks based on their analysis and preferences.

Investors who trust the fund manager’s allocation strategy in mutual funds may find flexi-cap funds appealing. If you seek broad diversification across all sizes and sectors, multi-cap funds could be a better fit.

Long-Term Track Record and the Importance of SIP

Multi-cap funds entered the market after the introduction of SEBI’s new regulations in September 2020. If you have confidence in the fund manager’s asset allocation strategy in mutual funds, flexi-cap funds could be an attractive option.

Investing through SIP over an extended period is often beneficial, especially in equity funds. The stock market’s fluctuations tend to even out over time, potentially resulting in substantial gains.

What is a Benchmark?

A benchmark is generally an index that represents the market’s performance, such as BSE Sensex and Nifty, against which mutual fund returns are compared. For example, if your mutual fund delivers a 59% return during a specific period, and the benchmark during the same period records a 70% return, it indicates that the fund has underperformed compared to the benchmark.

Small-Cap, Mid-Cap, and Other Caps Explained

Market capitalization, or market cap, categorizes companies based on their market value. Large-cap companies have a market cap of over INR 20,000 crores, mid-cap companies have a market cap between INR 5,000 crores and INR 20,000 crores, and small-cap companies have a market cap below INR 5,000 crores. Typically, the top 100 companies are considered large-cap, 100-250 as mid-cap, and the rest as small-cap.

Investors should carefully consider their investment goals, risk tolerance, and time horizon before choosing between multi-cap and flexi-cap funds.