Multicap vs. Felxicap: Which One Should You Invest In?
If you don’t understand the difference between multicap and flexicap funds, you’re not alone.
Multicap and flexicap are two of the most popular equity mutual fund categories, and they often confuse investors when it comes to choosing the right one. While they may seem similar, each has its unique advantages. In this blog, I’ll break down the key differences between multicap and flexicap funds, so you can decide which one to invest in.
Multicap vs. Flexicap
The Indian mutual fund industry has seen remarkable growth this year. The total Assets Under Management increased from ₹50.1 lakh crores in December 2023 to ₹67 lakh crores as of September 2024. This growth was attributed to both—strong inflows from heightened investor confidence and capital appreciation.
If single out equity mutual funds, the AUM has grown from ₹28 lakh crores to about ₹40 lakh crores.
Both multicap and flexicap funds allow the fund manager to invest across all market sizes—large-cap, mid-cap, and small-cap stocks. The main difference between them is the level of flexibility the manager has in deciding how to allocate the investments.
In a multicap fund, the manager is required to invest at least 25% of the fund’s capital in each of the large-cap, mid-cap, and small-cap categories. This means that a minimum of 75% of your investment will always be spread across these three market caps. The remaining 25% is at the manager’s discretion and can be allocated to any market cap or held in liquid assets.
Flexicap funds offer much more flexibility. The manager can choose to invest in any market cap—large, mid, or small—without any restrictions on how much must go into each category. The only requirement is that at least 65% of the funds must be invested in equities, but the allocation between market caps is entirely up to the fund manager.
So which one is a better option for you?
In multicap funds, since the manager must allocate at least 25% to each market cap, the fund’s performance largely depends on their ability to select the right stocks within each market cap category.
In flexicap funds, where the manager has complete freedom to adjust the market cap allocation, the fund’s performance depends on both stock selection and as well as market cap allocation skills. While this could be a source of outperformance, it can also increase the risk.
Let’s look at how some top funds performed recently.
The top 5 flexicap funds together manage over ₹250,000 crores. Over the last 12 months, they gave an average return of 37%, which is slightly lower than the NIFTY 500 index’s 37.4% return. This means, on average, top flexicap funds by AUM actually underperformed the index.
| Scheme Name | Benchmark | Return 1 Year (%) Direct | Return 1 Year (%) Benchmark | Daily AUM (Cr.) |
|---|---|---|---|---|
|
Parag Parikh Flexi Cap Fund |
NIFTY 500 Total Return Index |
37.34 |
37.41 |
82,869.75 |
|
HDFC Flexi Cap Fund |
NIFTY 500 Total Return Index |
44.23 |
37.41 |
65,776.73 |
|
Kotak Flexicap Fund |
NIFTY 500 Total Return Index |
34.59 |
37.41 |
52,535.00 |
|
UTI Flexi Cap Fund |
NIFTY 500 Total Return Index |
29.25 |
37.41 |
27,430.91 |
|
Aditya Birla Sun Life Flexi Cap Fund |
NIFTY 500 Total Return Index |
39.66 |
37.41 |
23,587.23 |
|
Average Return |
__ |
37.01 |
37.41 |
252,199.62 |
In contrast, the top 5 multicap funds managing about ₹107,000 crores and generated an average return of 45%, outperforming the NIFTY 500 multicap index’s 41% return. A good outperformance of 4%.
| Scheme Name | Benchmark | Return 1 Year (%) Direct | Return 1 Year (%) Benchmark | Daily AUM (Cr.) |
|---|---|---|---|---|
|
Nippon India Multi Cap Fund |
Nifty 500 Multicap 50:25:25 Total Return Index |
46.08 |
40.88 |
40,130.73 |
|
SBI Multicap Fund |
Nifty 500 Multicap 50:25:25 Total Return Index |
40.26 |
40.88 |
19,317.54 |
|
HDFC Multi Cap Fund |
Nifty 500 Multicap 50:25:25 Total Return Index |
43.86 |
40.88 |
17,903.98 |
|
Kotak Multicap Fund |
Nifty 500 Multicap 50:25:25 Total Return Index |
49.74 |
40.88 |
15,384.71 |
|
ICICI Prudential Multicap Fund |
NIFTY 500 Total Return Index |
44.36 |
40.88 |
14,456.00 |
|
Average Return |
__ |
44.86 |
40.88 |
107,192.96 |
Long Term performance:
However, when we look at 5-year and 10-year returns, the outperformance becomes less obvious.
Over a 5-year period, the top flexicap funds averaged 22.7% returns, only slightly beating the benchmark’s 21.8%. Over 10 years, it’s 17% vs. 15.5% of the benchmark.
| Scheme Name | Benchmark | Return 5 Year (%) Direct | Return 5 Year (%) Benchmark | Return 10 Year (%) Direct | Return 10 Year (%) Benchmark |
|---|---|---|---|---|---|
|
Parag Parikh Flexi Cap Fund |
NIFTY 500 Total Return Index |
27.03 |
21.82 |
19.80 |
15.54 |
|
HDFC Flexi Cap Fund |
NIFTY 500 Total Return Index |
25.66 |
21.82 |
16.92 |
15.54 |
|
Kotak Flexicap Fund |
NIFTY 500 Total Return Index |
19.73 |
21.82 |
16.77 |
15.54 |
|
UTI Flexi Cap Fund |
NIFTY 500 Total Return Index |
19.48 |
21.82 |
14.56 |
15.54 |
|
Aditya Birla Sun Life Flexi Cap Fund |
NIFTY 500 Total Return Index |
21.70 |
21.82 |
16.93 |
15.54 |
|
Average Return |
__ |
22.72 |
21.82 |
17.00 |
15.54 |
The story is similar for multicap funds where top multicap funds generated 27.2% return over a 5-year period against 25.8% of index and 18.4% against 17% over 10year period.
| Scheme Name | Benchmark | Return 5 Year (%) Direct | Return 5 Year (%) Benchmark | Return 10 Year (%) Direct | Return 10 Year (%) Benchmark |
|---|---|---|---|---|---|
|
Nippon India Multi Cap Fund |
Nifty 500 Multicap 50:25:25 Total Return Index |
28.34 |
25.83 |
17.62 |
17.02 |
|
ICICI Prudential Multicap Fund |
Nifty 500 Multicap 50:25:25 Total Return Index |
24.57 |
25.83 |
17.53 |
17.02 |
|
Quant Active Fund |
Nifty 500 Multicap 50:25:25 Total Return Index |
32.73 |
25.83 |
21.20 |
17.02 |
|
Invesco India Multicap Fund |
Nifty 500 Multicap 50:25:25 Total Return Index |
26.42 |
25.83 |
18.63 |
17.02 |
|
Sundaram Multi Cap Fund |
Nifty 500 Multicap 50:25:25 Total Return Index |
23.72 |
25.83 |
16.95 |
17.02 |
|
Average Return |
__ |
27.16 |
25.83 |
18.39 |
17.02 |
This brings us back to the age-old debate of active vs. passive investing. Over the long term, even top funds are barely able to beat their benchmarks. In fact, according to the SPIVA report, which tracks the performance of all active and passive funds, only about 20-30% actually outperform their benchmarks. This shows how challenging it is for a fund manager to consistently outperform year after year.
If we take example of our PMS offering—Long Alpha. Since inception, it has outperformed its benchmark by a solid margin. However, if you dig deeper, you’ll see that it underperformed the benchmark 28 out of the 73 months it has been live. So about 38% of the times it underperformed.
So, for most investors—those who may not have the stomach to hold onto active bets through periods of underperformance and prefer a simpler, more hands-off approach—a passive fund might be a better fit. And trust me, over the long run, you might actually outperform many others who are actively trying to pick the best active manager.
If we compare multicap and flexicap funds head-to-head, multicap funds have historically delivered better average returns, both in terms of active fund performance and index returns.
However, since the fund manager has more freedom in flexicap index, the returns are more dynamic and manager specific. This can mean more risk as an investor but could also lead to higher returns.
Ultimately, the choice depends on your individual preferences. Multicap funds offer balanced exposure across market caps, while flexicap funds are more dynamic. You can explore the data further through the resources in the description to make an informed decision.
Thank you for reading!
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