Multi-Cap vs Flexi-Cap Funds: Which Is Better for NRIs?

Mutual funds, whether for residents or NRIs, are popular investment options to increase their wealth. Today, investors have a range of equity mutual fund options, and two categories that often come into comparison are multi cap and flexi cap funds. Both the funds across different market capitalizations provide diversified exposure to investors. However, their allocation of assets differs, making each perfect for market scenarios and the needs of investors.

Confused between the two funds? To help you out in this blog, we have done a comparison between the multi-cap and flexi-cap funds. So read on and choose the fund that suits your financial and investment goals.

What Is a Multi-Cap Fund?

Multi-cap funds are a type of mutual fund that allows investors to invest in several capitalization styles, such as large-cap, mid-cap, and small-cap stocks. Investment in these funds by including companies of several sectors and sizes provides diversification to your portfolio. These funds from large to small-cap stocks spread investment across the market. Further, by balancing exposure to different parts of the market, it reduces the risk.

Additionally, according to the new guidelines of the Securities and Exchange Board of India (SEBI), multi cap funds should hold a minimum of 75% of their assets in equity and equity-related instruments. As per the regulations, the fund manager needs to allocate a minimum of 25% of its assets to large-cap stocks, 25% to mid-cap stocks, and 25% to small-cap stocks.

Also, based on the market conditions, optimizing opportunities and risk management, fund managers have the right to adjust the portfolios. To effectively navigate the market dynamics, these funds offer a well-rounded and flexible investment approach. Since these funds aim to balance return and risk, they are ideal investment options for NRIs with several investment timelines and risk preferences.

So, this was all about multi cap funds. Moving ahead, now let's know about flexi cap funds.

What Is a Flexi Cap Fund?

As the name states, flexi cap funds, in terms of investment, are flexible. You can invest in these funds in any market capitalization, i.e., large, mid, or small stocks. These funds provide opportunities to investors to invest across various companies of different capitalization and spread their investments. It further reduces unpredictability and risk.

Additionally, the freedom of asset allocation helps the fund managers to reduce the risk in downturns and increase benefits in bullish markets. This approach provides diversification and flexibility to investors that assist them in effectively managing risk. Further, according to the SEBI guidelines, flexi cap funds should invest a minimum of 65% of their assets in equity and equity-related instruments.

This was all about flexi cap funds. Moving further, let's know about the key differences between the two mutual funds.

Key Differences: Multi Cap vs Flexi Cap

The table below showcases the key differences between the multi cap and flexi cap mutual funds:

These were the key differences between multi cap and flexi cap funds for NRIs. Moving ahead, let's know the tax implications of these funds.

Tax Implications of Multi-Cap and Flexi-Cap Funds on NRIs

The tax implications of multi-cap and flexi-cap funds on NRIs are as follows:

This was all about the tax implications faced by NRIs in India on multi cap and flexi-cap funds. Moreover, as per the Budget 2024 Amendments, some recent changes have been made, effective from July 23, 2024. It showcases a potential increase in STCG to 20%. Additionally, LTCG at 12.5% on the amount more than INR 1,25,000. The two funds are taxed as equity funds.

Now, moving further, let's know which funds NRIs should choose for investment.

Multi Cap vs Flexi Cap Funds: What NRIs Should Choose for Investment?

Selecting between multi-cap and flexi-cap funds depends on the financial goals and situation of the NRIs. Considering this, here to help you out, we have mentioned certain situations as per each fund to choose from:

Multi Cap Funds Are Perfect For You If:

• Seeking balanced and structured exposure across market caps.
• Regardless of the market cycle, you prefer a stable asset allocation to mid and small-caps. It further benefits at the time of a bull market for these segments; however, during downturns adds risk.

Flexi Cap Funds Are Ideal for You If:

• You prefer flexibility. Additionally, to minimize risk in capitalizing or volatile markets, in large-cap stability during downturns want the fund manager wants to manage your portfolio.
• Seeking an investment that is based on market conditions and outlook, adjusts itself.

These were some of the circumstances where NRIs can opt for multi-cap or flexi-cap funds.

Final Thoughts

Lastly, multi-cap funds are a suitable choice for NRI investors who have a long-term investment horizon and a higher risk appetite. It generally offers structured exposure to all market caps, which in bullish markets provide strong returns. On the other hand, felxi cap funds are suitable for NRIs seeking a balanced risk approach, additionally, for those who, during the changing market conditions, value active fund management. Considering this, an NRI should select a fund that matches their investment objectives.

Further, if you still have confusion about which investment option you should choose, connect with Savetaxs. Our financial experts assist you in choosing the right investment as per your financial goals, risk appetite, and time horizon.