There are several investment options that can help you in earning high returns by investing in the market. One of these options is mutual funds. In a mutual fund scheme, an AMC, i.e., asset management company pools money from a group of investors. Once enough money is collected in the fund, it is used to purchase different kinds of financial securities. But there is one thing to remember about these schemes. It is that mutual funds are not a monolith. There are different variants of mutual funds that are available in the market as investment options.
One of the different types of mutual funds is equity funds. As the name suggests, these funds are known for directing investments towards equities and their related securities. As these funds are known to allocate funds towards equities, they are known for providing you with a chance to earn high returns. But there are two things you need to make note of before opting for an equity fund. Firstly, these investments come with a lot of risks. So, in case you are thinking of signing up for these funds, you need to have a high-risk appetite. Secondly, equity funds also have their own variants. Multi-cap funds and flexi-cap funds are some of the common examples of variants of equity funds.
Multi-cap mutual fund schemes are a type of equity mutual funds that are known for allocating funds to stocks of businesses that are known for having different market capitalisations. Multi-cap funds generally invest at least 75% of their total assets in the stocks of businesses coming with different market capitalisations. Furthermore, multi-cap equity mutual funds are required to invest at least 25% of their funds across large-, mid-, and small-cap stocks.
Are there any advantages of investing in multi-cap funds?
- Multi-cap funds are known for providing the feature of natural diversification. Multi-cap funds are known for investing in businesses that have different market caps and sectors. This action is known for automatically providing diversification to your investments. So, with multi-cap funds, you don’t need to worry about selecting between large-, mid-, or small-cap businesses by yourself. These funds are known for offering exposure to all kinds of market capitalisations.
- Multi-cap funds can also help you with generating wealth in the long term. Thanks to the different benefits that are associated with fund diversification, multi-cap funds are also known for generating inflation-beating returns over time. If you want to grow your wealth, multi-cap funds can be a great investment option.
Just like multi-cap funds, these funds are also a variant of equity funds that are known for allocating funds to companies found across a wide range of the market capitalisation spectrum. However, flexi-cap funds are known for being different from multi-cap funds in one way. Under multi-cap funds, a fund manager needs to stick to the 25-25-25 rule while investing. It means, the manager needs to maintain 25% each in large-, mid-, and small-cap stocks. No such rule is followed in flexi-cap funds. These funds are also known for diversifying your investment across businesses belonging to different market capitalisations without any sort of restrictions. However, it is important to remember that these funds are required to have a minimum of approximately 65% of total assets allocated to equity and their related instruments.
Are there any advantages of investing in flexi-cap funds?
- As mentioned before, in firm contrast to multi-cap funds, flexi-cap funds don’t come with any restrictions. This means that a fund manager is free to invest across the market capitalisation.
- Flexi-cap funds also can harness opportunities irrespective of the market cap or sector.
Where to Invest in Equity Funds: Multi vs. Flexi-Cap?
While you may think that one may be better than the other, it will be better if you were to look at things like the fund’s exposure, size and track record of the fund, and stance of the portfolio. Checking these things will give you a clear idea of whether to invest in flexi- or multi-cap funds.