A multi-cap fund gives a minimum 25% fixed allocation to each: large, mid-cap and small-cap. stock. This ensures diversification, but with limited flexibility for the fund manager. In flexi-cap funds, the fund manager dynamically allocates large, mid and small-cap stocks depending on market conditions.
According to AMFI March 2026 mutual fund data released in April 2026, the flexi-cap mutual fund category attracted inflows of Rs. 10,054 crores. Within the equity mutual fund category, flexi-cap funds recorded the largest inflows for the eighth consecutive month. So, what are flexi-cap funds, how are they different from multi-cap funds, how have they performed and which one should an investor choose? We will discuss all these points in this article.
What is a flexi-cap mutual fund?
Flexi-cap fund is an open-ended equity fund Invests a minimum of 65% of its total assets in equities and equity-related instruments. The fund invests in large-, mid- and small-cap stocks, with no minimum fixed allocation rule for each category. The fund manager makes allocations to each category dynamically based on market conditions.
A flexi-cap fund provides the much-needed flexibility to the fund manager to adapt to changing market conditions. For example, during broad bullish periods, mid- and small-cap stocks typically outperform. At such times, fund managers can increase allocation in these categories.
Similarly, in times of economic uncertainty, the fund manager may reduce investments in mid- and small-cap stocks to reduce volatility and increase allocation to large-cap stocks, which are relatively stable.
In the second scenario, where mid- and small-cap stocks have gained significantly and valuations have become expensive, the fund manager may reduce the allocation to these categories. Thus, the fund manager has the flexibility to increase or decrease the allocation to a particular category or categories depending on the perceived risk-reward opportunity.
In flexi-cap funds, the role of the fund manager is very important, as they decide the allocation for each category. If the fund manager’s decision is right, the fund performs better and investors earn good returns. If the market moves in the opposite direction, the fund will perform poorly and investors may suffer losses.
Many investors compare flexi-cap funds with multi-cap funds, as both funds invest in large, mid and small-cap stocks. However, the way funds are invested in these categories varies. So, let us first understand what multi-cap funds are, and then compare both the funds.
What is multi-cap mutual fund?
Multi-cap fund is an open-ended equity fund that invests at least 75% of its total assets Equity and equity related instruments. The minimum 75% equity allocation is as follows:
- Minimum 25% investment in large-cap companies
- Minimum 25% investment in midcap companies
- Minimum 25% investment in small-cap companies
A multi-cap fund follows a fixed allocation rule of minimum 25% to each of the 3 categories, irrespective of the market conditions. Thus, it provides an investor with good exposure to all categories of market capitalization through a single scheme. Beyond the minimum 25% fixed allocation, the fund manager can allocate incremental amounts to each category depending on market conditions.
Multi-cap funds offer investors the stability of large-caps and the growth potential of mid- and small-caps. Since multi-cap funds follow a fixed allocation rule, it limits the role and flexibility of the fund manager. The fund provides investors diversification across market capitalisation.
How has both the categories performed?
The returns given by both the categories are as follows.
fund category |
1 year |
3 years |
5 years |
|
Multi-Cap Fund |
7.18% |
17.90% |
16.25% |
|
flexi-cap fund |
4.39% |
14.75% |
13.42% |
Source: Value Research Online Website
Comment: The above data is as of May 4, 2026. 1 year returns are absolute, and 3 and 5 year returns are CAGR. Past performance is not indicative of future performance.
The above table shows that the multi-cap fund category has given better returns than the flexi-cap fund category over 1-, 3- and 5-year periods. These are the overall category returns. Within each category, individual mutual fund schemes may have given higher returns.
Which fund should an investor choose?
An investor should analyze his need to choose between two funds. Flexi and multi-cap funds offer investors exposure to all market categories across market capitalisations. However, multi-cap funds maintain a minimum 25% fixed allocation to each category, whereas flexi-cap funds allocate to each category dynamically depending on the market conditions.
As an investor, you are looking for a fixed, rules-based minimum allocation for each market category across the entire market. capitalization, you should choose multi-cap funds. However, if you want the fund manager to dynamically allocate across categories based on market conditions, you should opt for flexi-cap funds. Thus, it is a choice between rule-based, fixed allocation or strategy-based, flexible allocation.
Since both the funds have a high equity allocation, they are suitable for investors with an aggressive risk profile. Investing in these funds should be done for a long term (5 years or more) to benefit from the power of compounding and build wealth to meet your financial goals.
Flexi-cap and multi-cap funds are classified under the broader equity mutual fund category for taxation purposes. Taxation of capital gains is the same for both the funds. If mutual fund units are redeemed within 12 months of purchase, the gain is classified as short-term capital gains and taxed at 20%. If mutual fund units are redeemed after 12 months of purchase, the gain is classified as long-term capital gains. In a tax year, long term capital gains can be up to Rs. There is tax exemption up to Rs 1.25 lakh. Incremental long-term capital gains are taxed at 12.50%.
