Investment Advisory
Investment Advisory
SEBI’s 2017 circular streamlined mutual fund categories, bringing clarity to asset allocation and investment diversification strategies. However, a 2020 mandate required multi-cap funds to allocate at least 25% each to large, mid, and small-cap stocks, limiting their flexibility. In response, SEBI introduced Flexi-Cap funds, which offered fund managers greater discretion, requiring only 65% equity exposure without fixed allocations across market caps.
Both Flexi-Cap and Multi-Cap funds invest across different market capitalizations, which often leads to confusion when choosing between the two.
The key distinction lies in flexibility:
Benchmarking also differs, with Flexi-Cap funds aligned to the large-cap-heavy Nifty 500 TRI Index and Multi-Cap funds tied to the balanced Nifty 500 Multicap 50:25:25 TRI Index.
We analysed the performance of both fund types over different time periods. The comparison between Multicap and Flexi Cap funds reveals some interesting insights. Here’s a breakdown of observations:
1.Category-Level Performance
On average and median level, multi cap funds have outperformed flexi cap funds, except during the recent market corrections. This suggests that multi cap funds, which have exposure to large, mid, and small-cap stocks, might be better positioned to benefit from broader market movements especially when mid and small caps perform well.
2.Best Performing Scheme Comparison
When we look at the top-performing schemes within each category, the best-performing flexi cap fund has outpaced the best-performing multi cap fund across most time periods (except the 3-month mark). This means that while multi cap funds have been strong on average, the highest-performing flexi cap schemes have been more effective in capturing gains in certain periods. This implies that the outperformance of multi cap funds at the category level doesn’t always hold true at the scheme level. The top flexi cap schemes have shown superior performance, but this is not a general rule for the entire category and the top-performing schemes within either category can vary significantly.
3.Worst-Performing Scheme Comparison
In all periods considered, the worst-performing multi cap scheme has still managed to outperform the worst-performing flexi cap scheme. This indicates that multi cap funds, on average, provide a relatively more stable return even at the lower end of performance, while flexi cap funds might have a higher risk of underperformance, especially in less favourable market conditions.
4.Return Dispersion
The wide range of returns in flexi cap funds suggests that the performance within this category is highly variable. Some flexi cap funds can generate significant returns, while others may experience considerable losses. In contrast, multi cap funds appear to offer more consistency in their returns, with less variance across the board.
Yearly Trends
The choice between Multi-Cap and Flexi-Cap funds depends on market conditions and your portfolio’s goals. Multi-Cap funds suit those seeking balanced exposure, while Flexi-Cap funds are ideal for leveraging fund managers’ expertise during market shifts. The most effective approach to this dilemma is to adopt a comprehensive view of the portfolio. A diversified approach, actively adjusting allocations based on market dynamics, offers the best long-term strategy. Since asset allocation strategies are fundamental to portfolio management, adjusting exposure to large, mid, and small caps based on market dynamics and outlook will be crucial.
Multi-Cap and Flexi-Cap funds are complementary, not competitors. By aligning your portfolio with market cycles and carefully selecting fund managers, you can achieve consistent returns across various conditions. Portfolio management is about the bigger & whole picture—balancing strategy and flexibility to meet your financial objectives. Therefore, deciding between Multi caps and Flexi caps funds is not a simple matter of one being better than the other, as they should not be viewed as mutually exclusive.
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The Evolution of Categories SEBI’s 2017 circular streamlined mutual fund categories, bringing clarity to asset allocation and investment diversification strategies. However, a 2020 mandate required multi-cap funds to allocate at least 25% each to large, mid, and small-cap stocks, limiting their flexibility
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