A multi-cap fund gives a minimum 25% fixed allocation to each: large, mid, and small-cap stocks. It ensures diversification, but with limited flexibility for the fund manager. In a flexi-cap fund, the fund manager allocates dynamically to large, mid, and small-cap stocks, based on market conditions.
As per the 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 funds 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?
A flexi-cap fund is an open-ended equity fund that invests a minimum of 65% of its total assets in equity and equity-related instruments. The fund invests across large, mid, and small-cap stocks, with no minimum fixed allocation rule for each category. The fund manager allocates dynamically to each category based on market conditions.
A flexi-cap fund provides the fund manager with the much-needed flexibility to adapt to changing market conditions. For example, during a broader bull run, usually mid and small-cap stocks outperform. During such times, the fund manager can increase allocation to these categories.
Similarly, during times of economic uncertainty, the fund manager may pare down exposure to mid and small-cap stocks to mitigate volatility and increase allocation to large-cap stocks, which are relatively stable.
In another scenario, where mid and small-cap stocks have run up significantly and valuations have turned expensive, the fund manager can reduce allocation to these categories. Thus, the fund manager has the flexibility to increase or decrease allocation to a particular category or categories depending on the perceived risk-reward opportunity.
In a flexi-cap fund, the role of a fund manager is very important, as they decide the allocation to each category. If the fund manager’s decision is right, the fund outperforms, and investors earn good returns. If the market moves in the opposite direction, the fund will underperform, and investors may incur losses.
Many investors compare flexi-cap funds to multi-cap funds, as both funds invest across large, mid, and small-cap stocks. However, the way the funds invest in these categories is different. Hence, let us first understand what multi-cap funds are, and then compare the two funds.
What is a multi-cap mutual fund?
A multi-cap fund is an open-ended equity fund that invests at least 75% of its total assets in equity and equity-related instruments. The minimum 75% equity allocation is as follows:
- Minimum 25% investment in large-cap companies
- Minimum 25% investment in mid-cap companies
- Minimum 25% investment in small-cap companies
A multi-cap fund follows the minimum 25% fixed allocation rule to each of the 3 categories, irrespective of market conditions. Thus, it provides an investor with decent exposure to all categories across market capitalisation, all through a single scheme. Beyond the minimum 25% fixed allocation, the fund manager can allocate incremental amounts to each category based on market conditions.
A multi-cap fund provides investors with the stability of large-caps and the growth potential of mid and small-caps. As a multi-cap fund follows a fixed allocation rule, it limits the fund manager’s role and flexibility. The fund provides diversification to investors across market capitalisation.
How have the 2 categories performed?
The returns given by the 2 categories are as follows.
Fund category |
1-year |
3-years |
5-years |
|
Multi-cap funds |
7.18% |
17.90% |
16.25% |
|
Flexi-cap funds |
4.39% |
14.75% |
13.42% |
Source: Value Research Online website
Note: The above data is as of 4th May 2026. The 1-year returns are absolute, and the 3- and 5-year returns are CAGR. The past performance is not an indicator of future performance.
The table above shows that the multi-cap funds category has delivered better returns than the flexi-cap funds category over the 1-, 3-, and 5-year periods. These are overall category returns. Within each category, individual mutual fund schemes would have given higher returns.
Which fund should an investor choose?
An investor must analyse their need to choose between the two funds. Flexi and multi-cap funds give investors exposure to all market categories across market capitalisation. However, multi-cap funds maintain a minimum 25% fixed allocation to each category, whereas flexi-cap funds allocate dynamically to each category based on market conditions.
As an investor, if you are looking for a fixed, rule-based minimum allocation to each market category across market capitalisation, you should go for a multi-cap fund. However, if you want the fund manager to dynamically allocate across categories based on market conditions, you should go for a flexi-cap fund. Thus, it is a choice between rule-based, fixed allocation or strategy-based, flexible allocation.
As both funds have a high equity allocation, they are suitable for investors with an aggressive risk profile. Investments in these funds must be made for the long term (5 years or more) to benefit from the power of compounding and create wealth to fulfil your financial goals.
Flexi-cap and multi-cap funds are categorised under the broader equity mutual funds category for taxation purposes. The taxation of capital gains for both funds is the same. If the mutual fund units are redeemed within 12 months of purchase, the gains are categorised as short-term capital gains and taxed at 20%. If the mutual fund units are redeemed after 12 months of purchase, the gains are categorised as long-term capital gains. In a tax year, long-term capital gains up to Rs. 1.25 lakhs are exemption from taxation. The incremental long-term capital gains are taxed at 12.50%.