Whether it is about choosing the right kind of clothes at a multi-brand outlet, eating out at a multi-cuisine restaurant or making the right kind of investment – flexibility is seen as a virtue. In light of this, flexi cap funds which are free to invest across the market capitalization spectrum are considered a better option for investors who look for diversified funds as a good investment.
For non-beginners, Flexi Mutual Funds are allowed to choose the ratio between Large, Mid and Small Cap as it deems suitable to them. On the other hand, multi cap funds are mandated to have a minimum cap of 25 per cent in each of the three fund categories.
When this distinction was introduced after the implementation of SEBI guidelines, many mutual funds in the multi cap category moved to flexi cap.
As a result, the multi cap space remains open with many AMCs yet to launch fund schemes in the sector.
Net inflow of multi cap funds in the March quarter was 11,171.26 crore and assets under management (AUM) for total 14 schemes under this category 54,932 crore as per AMFI data for Q4 of the financial year 2022.
In the month of March, what caused the biggest inflow into multi cap funds? 8,000 crore NFO of SBI Multi Cap. Earlier, the multicap NFOs of Axis and HDFC Mutual Fund had made tremendous gains in the month of December.
Whereas, the net inflow for Flexi Cap funds is 8,950 crores for a total of 31 schemes and the net AUM is 2,25,430, which is more than four times the AUM of a multi cap fund.
As the RBI hiked its repo rate by 40 basis points on Wednesday, banks are likely to follow suit, thus affecting rate-sensitive stocks as well as funds.
Regarding the impact of hike in repo rate on mutual funds, S Sreedharan, Founder and CEO, Wealth Ladder Direct says, there will be no direct impact on any category of mutual fund, but cost of borrowing will increase after repo rate hike. . “The lending rates of banks will increase, which may hamper the ability of companies to raise money and invest. This will affect the profit margins of companies and, in turn, mutual fund returns,” he says.
The highest return in the multi cap category was given by Baroda BNP Paribas Multi Cap Fund, which gave a return of 35.19 per cent.
“Whether an investor chooses flexi cap or multi cap depends on their risk appetite. In multi cap, investors are aware of their risk appetite, whereas in flexi cap funds, they are not aware of the level of risk,” says Mr. Sreedharan.
He explains this with an example. “Suppose a flexi cap scheme has an allocation of 40 per cent to mid-caps and 30 per cent each to large caps and small caps. When large cap stocks are expected to rise, the fund manager can allocate most of the portfolio to large cap stocks. In this way, investors’ assets become more sensitive to one category of funds. Hence, investors are ignorant of risk taking in flexi cap funds.”
On the other hand, in multi cap funds, investors are aware of the asset allocation i.e. 25 per cent each in large cap, mid cap and small cap funds.
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