How To Choose Between Multi Cap Funds and Flexi Cap Funds

How To Choose Between Multi Cap Funds and Flexi Cap Funds

Many investors are familiar with mutual funds, but two main types of funds tend to get overlooked: Flexi Cap Funds and Multi-Caps. These two investment strategies differ significantly in their tax consequences and how investors can use them. 

In this article, we'll discuss what these types of funds are, how they differ, and why you might want to invest in one over the other.

What is a Flexi Cap Fund?

A Flexi cap fund is an open-ended fund that buys and sells stocks at any time during the trading day to react to market fluctuations. This type of fund is prevalent in Asia. 

Investors who own a Flexi cap fund don't know how much of their fund's assets are currently in stocks or cash. This type of fund is also known as a "passive" fund because it simply reacts to stock prices and does not try to pick which stocks will do well. 

Because a Flexi cap fund doesn't try to pick stocks that will do well, it also avoids much of the risk associated with the stock market, such as market volatility and business risk.

What is a Multi-Cap Fund?

A multi-cap fund has a large number of smaller stocks in its portfolio. The advantage of a multi-cap fund is that it exposes you to many smaller companies, which often have better investment returns than a single large company. 

While a multi-cap fund requires more research to identify which stocks are in the portfolio. It can be time-consuming, especially for investors who don't have much time to research companies.

Also, investors with general investing strategies may find it challenging to invest in multi-cap funds and have specific strategies, such as investing only in companies within a specific industry or with other characteristics in common.

How to choose between Flexi Cap Funds and Multi-Cap Funds?

Choosing between a Flexi cap fund and a multi-cap fund depends on your investment strategy. If you want a flexible, hands-off approach, a Flexi cap fund may be better suited to your needs. 

If you want more control over your investments, choose a multi-cap fund. Different investment strategies also call for different types of funds. If you want an all-in-one tool that takes care of your entire investment portfolio, invest in a single fund that holds stocks, bonds, real estate, and other assets.

Important characteristics of a good fund

Investors investing in a multi-cap fund should look for these characteristics when choosing between Flexi cap and multi-cap funds. Investment fund characteristics 

Fund size 

The more significant the fund, the more likely it is to be targeted by the investment manager. If a fund's size is too small, it may be difficult for the manager to achieve a good return. 

Investment Types  

Funds can fall into several types: growth, conservative, or balanced. You may prefer a conservative fund because it will likely hold less risky assets.

Investment Style 

Investment styles refer to how fund managers make investment decisions. Some funds are actively managed and may invest in stocks, while others are passively managed, meaning that they hold liquid assets, such as bonds or cash, and will not trade stocks in search of returns.

Fund Manager 

 A good Experienced Fund manager will act like your guardian angel to help your money survive and make some decent return.

Conclusion

In summary, Investors who prefer a flexible investment approach, do not want to deal with the tax implications of investing in multiple funds or don't want the risk associated with multi-cap funds will find Flexi cap funds to be a good match.

In addition to exposing investors to many smaller companies, multi-cap funds also offer investors the chance to profit from the investment returns from investing in many companies. 

A multi-cap fund is ideal for investors who do not need the hands-off approach that comes with Flexi caps and who do not mind the higher risks of investing in a single large company that faces some business risks.