Flexi cap and multi cap funds sound almost identical. Both invest in large, mid and small companies, and both are labelled “diversified” equity funds. But SEBI rules give them very different levels of freedom, and that changes their risk. This guide on flexi cap vs multi cap funds explains the rules, the risk and a simple way to compare them.
Key takeaways
- A multi cap fund must invest at least 25% each in large, mid and small cap stocks.
- A flexi cap fund must invest at least 65% in equity, with no fixed split across company sizes.
- Multi cap funds always hold at least 50% in mid and small caps combined, so they tend to be more volatile.
- Flexi cap funds depend more on the fund manager’s judgement to shift between segments.
- Both are taxed as equity-oriented mutual funds.
- Compare them on portfolio mix, rolling returns, downside, expense ratio and your own goals, not on the label alone.
How SEBI defines company size
To understand both categories, start with market capitalisation. SEBI’s mutual fund categorisation and rationalisation circular of October 2017 defines company size using full market capitalisation:
- Large cap: 1st to 100th company
- Mid cap: 101st to 250th company
- Small cap: 251st company onwards
AMFI publishes this ranked list every six months, and fund houses use it to classify their holdings. You can read more in our detailed guide on large cap vs mid cap vs small cap funds.
What is a multi cap fund?
A multi cap fund is an equity scheme that must spread money across all three company sizes in fixed minimum proportions.
SEBI rules for multi cap funds
Through its September 2020 circular, SEBI revised the multi cap category. Under the current rules:
- At least 75% of total assets must be in equity and equity-related instruments.
- At least 25% must be in large cap stocks.
- At least 25% must be in mid cap stocks.
- At least 25% must be in small cap stocks.
The remaining 25% of the portfolio can go anywhere the fund manager chooses, including more equity in any segment, debt or cash, within the scheme’s stated limits.
What this means for investors
Because at least 50% must always sit in mid and small caps, a multi cap fund carries meaningful exposure to smaller companies in every market phase, including when those stocks are falling. That brings higher potential volatility, but also a built-in, rule-based diversification.
What is a flexi cap fund?
A flexi cap fund is an equity scheme that can invest across company sizes without any minimum allocation to a particular segment.
SEBI rules for flexi cap funds
SEBI created the flexi cap category in November 2020. The key rule is:
- At least 65% of total assets must be in equity and equity-related instruments.
- There is no minimum or maximum for large, mid or small caps.
Many schemes that were earlier multi cap funds moved to the flexi cap category when it was introduced, so they could keep their flexible style.
What this means for investors
A flexi cap manager can hold, say, 75% in large caps in one period and shift more into mid caps in another. This flexibility can help manage risk, but outcomes depend heavily on the manager’s decisions. Two flexi cap funds can look completely different. You can explore the category on the Quantsgrow flexi cap funds page.
Flexi cap vs multi cap: a ₹1 lakh example
Imagine you invest ₹1,00,000 in each type of fund. The allocations below are hypothetical, for illustration only.
Multi cap fund (rule-bound)
- Large cap: at least ₹25,000
- Mid cap: at least ₹25,000
- Small cap: at least ₹25,000
- Remaining ₹25,000: manager’s choice
A sample portfolio could be ₹40,000 large cap, ₹30,000 mid cap, ₹27,000 small cap and ₹3,000 cash.
Flexi cap fund (flexible)
- Equity: at least ₹65,000 in total
- No minimum in any single segment
A sample portfolio could be ₹70,000 large cap, ₹18,000 mid cap, ₹7,000 small cap and ₹5,000 cash. Another flexi cap fund could look completely different.
In this illustration, the multi cap fund has ₹57,000 in mid and small caps, while the flexi cap fund has ₹25,000. If smaller companies fall sharply, the multi cap fund is likely to feel more of the impact. If they rally, it may benefit more.
Flexi cap vs multi cap funds: comparison table
| Feature | Flexi cap fund | Multi cap fund |
|---|---|---|
| SEBI minimum equity | 65% of total assets | 75% of total assets |
| Large cap allocation | No minimum | At least 25% |
| Mid cap allocation | No minimum | At least 25% |
| Small cap allocation | No minimum | At least 25% |
| Fund manager freedom | High | Moderate (fixed floors) |
| Typical volatility | Depends on portfolio; often lower if large-cap heavy | Usually higher due to at least 50% in mid and small caps |
| Key risk | Manager’s allocation calls | Forced exposure to smaller companies in downturns |
| Tax treatment | Equity-oriented fund | Equity-oriented fund |
Risk: which category is more volatile?
There is no fixed answer, because flexi cap portfolios vary so widely. In general:
- Multi cap funds have a structural tilt towards mid and small caps, which historically tend to swing more than large caps.
- Flexi cap funds often lean towards large caps, but they are allowed to change this at any time.
SEBI requires every scheme to show a riskometer, and most flexi cap and multi cap funds are rated “Very High” risk. Always check the scheme’s current riskometer and portfolio disclosure rather than assuming.
How to compare flexi cap and multi cap funds
Use this checklist before deciding whether either category fits your plan:
- Check the current market cap split. Look at the latest monthly portfolio for the actual large, mid and small cap percentages.
- Look at rolling returns, not just point-to-point returns. Rolling 3-year and 5-year returns show consistency across market cycles.
- Study the downside. Check how the fund behaved during falls compared with its benchmark.
- Compare with the right benchmark. Multi cap funds are usually benchmarked to a multi cap index, and flexi cap funds to a broad market index.
- Check the expense ratio. A direct plan usually costs less than a regular plan.
- Review portfolio overlap. If you already hold a large cap or index fund, a large-cap-heavy flexi cap fund may add little diversification.
- Match the horizon. Equity funds with mid and small cap exposure are generally suited to long holding periods, often five years or more.
When comparing returns, use XIRR for your SIPs and CAGR for lumpsum periods. Our guide on CAGR vs XIRR vs absolute return explains the difference.
Tax on flexi cap and multi cap funds
Both categories are equity-oriented funds, so the same rules apply. After the changes announced in Budget 2024 (effective 23 July 2024):
- Short-term capital gains (units held up to 12 months) are taxed at 20%.
- Long-term capital gains (units held over 12 months) are taxed at 12.5% on gains above ₹1.25 lakh in a financial year.
Surcharge and cess apply as per your income. Tax laws change, so confirm the latest rules on the Income Tax Department website.
Common mistakes to avoid
- Assuming the name tells you the risk. Two flexi cap funds can have very different portfolios.
- Holding many diversified funds. Several flexi cap and multi cap funds together can lead to heavy overlap and an expensive “closet index”.
- Chasing last year’s top performer. Short-term rankings change often.
- Ignoring your existing portfolio. Add a fund for what it brings to your overall mix.
- Exiting during sharp falls. Multi cap funds in particular can see deep temporary drawdowns.
Flexi cap funds give the fund manager freedom; multi cap funds give the investor rule-based exposure to all three company sizes. The right fit depends on which kind of discipline you prefer.
Conclusion
The flexi cap vs multi cap funds decision comes down to flexibility versus structure. Multi cap funds follow SEBI’s fixed 25-25-25 floors, giving steady exposure to mid and small caps. Flexi cap funds let the manager move freely across company sizes, so your experience depends more on their decisions. Study the actual portfolio, risk and costs before choosing.
To compare schemes side by side, open the free Quantsgrow app and visit the flexi cap funds page. You can also browse all mutual fund categories and project your SIP using the SIP calculator.
Frequently Asked Questions
What is the main difference between flexi cap and multi cap funds?
Under SEBI rules, a multi cap fund must keep at least 25% each in large cap, mid cap and small cap stocks, with at least 75% in equity overall. A flexi cap fund must keep at least 65% in equity but can split that money across company sizes in any proportion. So multi cap funds have a fixed minimum mix, while flexi cap funds are fully flexible.
Which is riskier, a flexi cap fund or a multi cap fund?
It depends on the portfolio, not just the label. A multi cap fund must always hold at least 50% in mid and small cap stocks combined, which usually means higher volatility. A flexi cap fund may hold mostly large caps, which can lower volatility, but its risk can rise if the manager shifts heavily into smaller companies. Always check the current portfolio and riskometer.
Are flexi cap and multi cap funds taxed differently?
No. Both are equity-oriented funds because they hold at least 65% in domestic equity, so the same equity tax rules apply. As per the rules introduced in Budget 2024, gains on units held up to 12 months are taxed at 20%, and long-term gains above ₹1.25 lakh in a financial year are taxed at 12.5%. Check the Income Tax Department website for current rules.
When did SEBI introduce the flexi cap category?
SEBI introduced flexi cap as a separate equity category in November 2020. This came soon after its September 2020 circular that tightened multi cap rules to require at least 25% each in large, mid and small cap stocks. Many funds that were earlier called multi cap moved to the new flexi cap category so they could keep their flexible allocation style.
How often does a stock’s large, mid or small cap status change?
AMFI publishes the list of large, mid and small cap companies every six months, based on average full market capitalisation. Large caps are the top 100 companies, mid caps are ranked 101 to 250, and small caps are 251 and below. Funds then get time to rebalance their portfolios to stay within SEBI limits after a list is updated.
Disclaimer
This article is for educational purposes only and is not investment advice. Quantsgrow is not a SEBI-registered investment adviser, and the allocations and examples shown are hypothetical and for illustration only. Please consult a SEBI-registered investment adviser before making any investment decision. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.
