Flexi cap and multi cap funds both invest across large, mid and small companies and the difference is how much freedom the manager has. A SEBI circular dated 11 September 2020 defined the multi cap category with a 25-25-25 floor, at least 75% in equity with a minimum 25% each in large-cap, mid-cap and small-cap stocks at all times. Eight weeks later a circular dated 6 November 2020 created the flexi cap category, which needs at least 65% in equity but sets no cap-wise floor, leaving the manager free to move between large, mid and small as they see fit.
The timing tells the story. The flexi cap category was the industry's escape valve. The multi cap rule had forced every such fund to hold at least a quarter in small-caps, a chunky commitment to the most volatile end of the market and most large multi cap funds converted to flexi cap to avoid being forced buyers of small-caps. The labels look similar but the constraint is the whole point.
In every ₹100 of equity, a multi cap fund must hold at least ₹25 in small-caps, while a flexi cap fund can hold ₹0 and park the lot in large-caps if the manager prefers.
Where It Shows Up #
The category label sits on every equity scheme page beside its cap allocation. Comparing two funds starts with reading which of these two mandates each one carries.
The Source #
SEBI circulars SEBI/HO/IMD/DF3/CIR/P/2020/172, 11 September 2020 (multi cap) and SEBI/HO/IMD/DF3/CIR/P/2020/228, 6 November 2020 (flexi cap). Issuing authority.
Related on FinSet #
This entry is general education, not personal advice or a recommendation of any scheme. Mutual fund investments are subject to market risks. Read all scheme related documents carefully.