Mutual funds are a financial investment tool for gaining profit. It so happens, that trust takes the responsibility of collecting money from various people who are interested in investing, then this amount is further used to buy bonds, securities, equities, and other financial instruments. The profit from this investment is equally divided amongst the investors. Now, mutual funds are of various types such s diversified funds, Flexi cap funds, and multi-cap funds. These are all equity mutual funds where the fund is invested in various market capitalization like large-cap, mid-cap, and small-cap stocks.
SEBI which is the market regulator recently made an announcement that a new type of mutual fund is being brought to existence in the market for better investment purposes. This new sort of mutual fund is the Flexi-Cap mutual fund. Earlier, there was only the multi-cap mutual fund which only invested in all the listed stocks at BSE and NSE. This was a good investment for those investors whose aim is to invest for 2 to 3 years. These investors look for long term profit and high returns from their investment and multi-cap mutual fund catered to this need of the investors perfectly well. Moreover, SEBI came to the conclusion that multi-cap mutual funds only concentrated investment in large-cap stocks. To remove the biased investment scenario, SEBI came up with the category of Flexi Cap mutual fund where the fund manager retains the decision for allocation to market capitalization.
Features of Multi-Cap Mutual Fund & Flexi-Cap Mutual Fund
The multi-cap mutual funds are allowed for 25% minimum allocation in large-caps, mid-caps, and small-cap stocks. The risk factor in investing in a multi-cap mutual fund is moderate and does not incur high risk. Whereas Flexi cap is allowed for 65% in equities as well as flexibility in market capitalization. Hence in the category of Flexi cp mutual fund, an investor can easily and freely move between large –caps,mid-caps, and small-caps. Hence Flexi caps mutual funds are more flexible in nature than the multi caps mutual funds.
Now the role of the fund manager is limited when it comes to choosing stocks for a multi-cap mutual fund. The control is not in the hands of the fund manager. But when it is about the flex-cap mutual fund, the fund manager can not only choose the stocks but has control over market capitalization as well. Moreover, the fund manager is responsible for the regulation of timely entrance and exit in relation to a market capitalization of stocks, in Flexi –cap mutual funds. In a multi-cap mutual fund, no time regulation is required.
In the multi-cap mutual fund, the existence of a standardized yardstick or benchmark index is present, which helps in understanding performances. But in the Flexi-cap mutual fund, no benchmark of this sort exists for comparing performances.
Moreover, in multi-cap mutual funds, the investors aim at high return and the return is pitted against the index which is the benchmark. But in Flexi cap mutual fund the returns from the investment can only be compared amongst each other because of the lack of existence of an index as a benchmark.