The one thing you want to do as a beginner investor is to mitigate investment risk as best as possible. Investing in different mutual funds is the simplest way to do this.

Now, if you’ve done your research well, you know you have two options – investing in flexi cap or multi cap funds. So which one should you choose?

This article goes over the differences between the two funds and gives you tips on picking the right one.

Difference in market cap
The key difference between them is the minimum allocation requirement to small, mid and large cap stocks.

Investors must invest at least 65% in equity in flexi cap funds according to SEBI guidelines. There are no restrictions for investments within a particular cap. This means fund managers can allocate different amounts of funds to different caps based on their strategy to minimise losses.

Multi cap funds however require investors to invest a minimum of 25% of the amount in small cap, mid cap and large cap funds, irrespective of the market performance.

For instance, when investors opt for flexi cap funds, they can invest 35% of their corpus in small cap funds, 15% of their corpus in mid cap funds and 50% of their corpus in large cap funds. However, in each of these investments, they must ensure 65% of the total amount is devoted towards equities.

In contrast, when investors invest in multi cap funds, they cannot invest 15% of their corpus in mid cap funds like the previous example. The minimum investment is 25% to every market cap.

In simple terms, flexi cap funds give fund managers greater control over investments. They can shift allocations easily between the different caps depending on market fluctuations.

In contrast, managers cannot freely make allocations since multi cap mutual funds require a minimum allocation account. This makes these investments more aggressive, and volatile compared to flexi cap funds.