Flexi-Cap Fund or Multi-Cap Fund – which makes more sense?

Flexi-Cap Fund or Multi-Cap Fund – which makes more sense?

by 5paisa Research Team Last Updated: Dec 15, 2022 - 12:33 am 39.5k Views
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It has been over a year now of SEBI releasing a circular amending the definition of multi-cap funds and as a result, flexi-cap emerged. Read on to understand which makes more sense – flexi-cap or multi-cap?

The Securities and Exchange Board of India (SEBI) modified the definition of multi-cap funds, resulting in the creation of the flexi-cap category after mutual fund rationalization. On September 11, 2020, SEBI published a circular requesting that all those multi-cap funds that wanted to remain multi-cap funds needed to deploy at least 25% of their assets each to large-cap, mid-cap and small-cap funds by February 2021. This was done to ensure that the funds lived up to their name. With this, mutual fund investors were unsure whether to stay with such funds and stock investors were surprised since such big-selling and purchasing would cause a lot of volatility in the market.

However, following a debate and proposals from stakeholders, SEBI created a new category known as flexi-cap. The definition was set so that the multi-cap funds would now be free to allocate funds across market capitalizations. Therefore, it makes complete sense to compare these two to understand which is better among them. To conclude this, we have examined the Nifty 500 Total Returns Index (TRI) that would represent flexi-cap funds and Nifty 500 Multi-Cap 50:25:25 TRI with data of over 16 years ranging from January 2006 to December 2021.

Rolling Returns (%) 




Nifty 500 Multi-Cap 50:25:25 TRI 




Nifty 500 TRI 




As we can see, Nifty 500 Multi-Cap 50:25:25 TRI in long-term does better than that of Nifty 500 TRI. This means on returns front multi-cap funds do slightly better than flexi-cap funds. But risk is something that should not be ignored. 

Risk Metrics 

Standard Deviation (%) 

Downside Deviation (%) 

Maximum Drawdown (%) 

Sharpe Ratio 

Sortino Ratio 

Nifty 500 Multi-Cap 50:25:25 TRI 






Nifty 500 TRI 






In terms of risk, both are almost similar when we run them through volatility test as measured by standard deviation and downside deviation. However, the real difference is witnessed in maximum drawdown. This measure shows that, Nifty 500 Multi-Cap 50:25:25 TRI falls more than Nifty 500 TRI. This means on an average multi-cap funds tend to fall more than flexi-cap funds and this is due to their asset allocation.

As of December 2021, the category average allocation towards multi-cap funds is 47%, and towards small-cap is 18%. Similarly, the category allocation towards large-cap and small-cap for flexi-cap fund is 71% and 7%. As flexi-cap funds are large-cap biased, they would fall less compared to multi-cap funds. Therefore, for conservative investors flexi-cap fund makes more sense, while moderate investors can consider multi-cap funds. Having said that, in terms of volatility both move on similar lines.

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