"Should I invest in a flexi cap or multi cap fund?"
This question comes up almost daily in our Belong WhatsApp community. And honestly, the confusion is understandable.
Both fund types invest across large-cap, mid-cap, and small-cap stocks. Both promise diversification. Both sound similar. Yet they work very differently.
The difference comes down to one thing: Regulation.
Multi cap funds must invest exactly 25% each in large, mid, and small-cap stocks. No choice. Flexi cap funds can put 80% in large caps if the manager wants. Or 80% in small caps. Total freedom.
This regulatory difference changes everything: risk levels, volatility, returns during different market phases, and which type of investor each fund suits.
At Belong, we've helped NRIs build portfolios using both fund types. Some portfolios need the discipline of multi cap's fixed allocation. Others benefit from flexi cap's flexibility.
The right choice depends on your risk appetite and how much you trust fund manager decisions.
This guide explains the real differences with current data, so you can decide which fits your portfolio.
The SEBI Story: Why Do Two Similar Categories Exist?
Before September 2020, there was only one category called "multi cap." Fund managers could invest freely across market caps with no restrictions.
But SEBI noticed a problem.
Most multi cap funds had turned into disguised large-cap funds. Fund managers were parking 70-80% in large caps because they were "safer." Investors thought they were getting diversified exposure across all market caps. They weren't.
September 2020: SEBI Changes Multi Cap Rules
On September 11, 2020, SEBI issued a circular mandating multi cap funds to invest at least 25% each in large-cap, mid-cap, and small-cap stocks. (SEBI Circular)
This caused panic. Fund houses with Rs 1.5 lakh crore in multi cap AUM suddenly had to buy massive amounts of mid and small-cap stocks. They complained the rule was too restrictive.
November 2020: SEBI Creates Flexi Cap Category
Two months later, on November 6, 2020, SEBI responded by creating a brand new category: Flexi Cap funds. (SEBI Circular)
Fund houses were given two choices:
- Comply with the new 25-25-25 rule and remain multi cap
- Convert to flexi cap and retain complete allocation freedom
Most popular multi cap funds chose flexi cap. Schemes like Kotak, Axis, and Motilal Oswal converted overnight. This is why you see 41 flexi cap funds today with Rs 5 lakh crore AUM, compared to just 32 multi cap funds with Rs 2 lakh crore. (Business Today)
👉 Tip: If a fund you invested in before 2021 was called "multi cap," check if it's now a "flexi cap." The name change matters because the investment strategy likely changed too.
SEBI Rules: The Core Difference
Parameter | Multi Cap Fund | Flexi Cap Fund |
|---|---|---|
Minimum equity allocation | 75% | 65% |
Large cap allocation | Minimum 25% | No minimum |
Mid cap allocation | Minimum 25% | No minimum |
Small cap allocation | Minimum 25% | No minimum |
Fund manager discretion | Limited (25% flexible) | Complete freedom |
Multi Cap: The 25-25-25 Mandate
A multi cap fund must maintain:
- At least 25% in large-cap stocks (top 100 companies by market cap)
- At least 25% in mid-cap stocks (companies ranked 101-250)
- At least 25% in small-cap stocks (companies ranked 251+)
- The remaining 25% can go anywhere the manager chooses
Total equity must be at least 75% of the portfolio.
Flexi Cap: Total Freedom
A flexi cap fund only needs to maintain 65% in equity. Within that equity portion, the fund manager can allocate however they see fit.
If the manager believes large caps will outperform, they can put 70% in large caps. If small caps look attractive, they can shift heavily there. No restrictions.
This freedom sounds attractive. But it comes with a catch: You're betting entirely on the fund manager's judgment.
How Allocation Actually Differs in Practice
Theory is one thing. Let's see how these funds actually allocate money.
Average Multi Cap Fund Allocation (August 2025):
Market Cap | Average Allocation |
|---|---|
Large Cap | 39.57% |
Mid Cap | 26.08% |
Small Cap | 29.08% |
Average Flexi Cap Fund Allocation (August 2025):
Market Cap | Average Allocation |
|---|---|
Large Cap | 62.83% |
Mid Cap | ~20% |
Small Cap | ~15% |
Notice the stark difference. Multi cap funds have roughly 55% in mid and small caps (combined). Flexi cap funds have only about 35% in the same segments.
This allocation difference drives all other differences: risk, volatility, returns.
👉 Tip: Check the fund's monthly factsheet before investing. Don't assume a flexi cap is diversified across all market caps. Some flexi caps have 70%+ in large caps alone.
Risk and Volatility: Which Is Riskier?
Multi Cap Funds Are Generally Riskier
With mandatory 50%+ exposure to mid and small-cap stocks, multi cap funds experience higher volatility. Mid and small-cap stocks swing more dramatically during market ups and downs.
According to investment consultant Amit Upadhyaya: "Multi-Cap funds, with mandatory exposure to volatile Mid and Small Caps, display higher risk and standard deviation." (Business Today)
Flexi Cap Funds Can Reduce Risk During Downturns
When markets fall, flexi cap managers can shift towards large caps for stability. This flexibility helps cushion drawdowns.
The same analyst notes: "Flexi-Cap funds, with the freedom to tilt towards Large Caps during turbulence, show lower volatility, better Sharpe ratios, and stronger alignment with benchmarks."
Risk Comparison:
Factor | Multi Cap | Flexi Cap |
|---|---|---|
Standard Deviation | Higher | Lower |
Beta | Higher | Lower |
Downside Protection | Limited (must hold small caps) | Better (can shift to large caps) |
Upside Capture | Higher in bull runs | Depends on manager timing |
For NRIs who want equity exposure but worry about volatility, flexi cap's ability to shift defensive during uncertain times provides comfort.
Performance: Which Delivers Better Returns?
Performance depends heavily on market cycles.
When Small Caps Rally: Multi Cap Wins
In 2021-2023, small and mid-cap stocks massively outperformed large caps. Multi cap funds, forced to hold 50%+ in these segments, captured this rally fully.
When Markets Correct: Flexi Cap Holds Better
In corrections, flexi cap funds with large-cap bias fall less. Their flexibility to have shifted defensive before or during corrections reduces losses.
Recent Category Performance:
Period | Multi Cap Average | Flexi Cap Average |
|---|---|---|
3-Year | 15.94% | 18-22% |
5-Year | 18.59% | 18-27% |
10-Year | 12.16% | Varies widely |
Top Performing Multi Cap Funds (5-Year Returns):
Fund | 5-Year CAGR | AUM |
|---|---|---|
Mahindra Manulife Multi Cap | 26.43% | Rs 5,010 Cr |
Nippon India Multi Cap | 25.37% | Rs 39,000 Cr |
Invesco India Multi Cap | 24.71% | Rs 3,897 Cr |
Top Performing Flexi Cap Funds (5-Year Returns):
Fund | 5-Year CAGR | AUM |
|---|---|---|
Quant Flexi Cap | 27.3% | Rs 6,890 Cr |
Bank of India Flexi Cap | 26.0% | Rs 2,165 Cr |
JM Flexicap | 25.6% | Rs 5,990 Cr |
Franklin India Flexi Cap | 23.6% | Rs 18,912 Cr |
(Scripbox)
👉 Tip: Past performance differs based on which market cap segment outperformed during that period. Don't chase returns from the last 3 years. Consider what market conditions might look like over your investment horizon.
Fund Manager Dependence: The Hidden Factor
This is crucial but often overlooked.
Multi Cap: Less Dependent on Manager Skill
The 25-25-25 rule removes major allocation decisions from the manager's hands. The fund will have diversified exposure regardless of manager views.
If the manager makes poor stock selections, returns suffer. But the overall portfolio structure is guaranteed.
Flexi Cap: Heavily Dependent on Manager Judgment
The fund's character entirely depends on who's running it.
Some flexi cap managers run conservative, large-cap-heavy portfolios. Others swing aggressively between market caps. The same category can have funds with completely different risk profiles.
Consider Parag Parikh Flexi Cap. It maintains a value-focused approach with significant large-cap allocation and even holds international stocks. Contrast this with Quant Flexi Cap, which takes aggressive sector and market-cap bets. Both are "flexi cap" but behave completely differently.
"Fund manager expertise is critical in Flexi-Cap funds," notes Amit Upadhyaya. (Business Today)
What This Means for You:
If you want predictable exposure across all market caps without worrying about manager decisions, multi cap provides that discipline.
If you trust a specific manager's judgment and want them to have full freedom, flexi cap makes sense.
Expense Ratios: Any Cost Difference?
Both categories have similar expense ratio ranges.
Fund Type | Direct Plan Range | Regular Plan Range |
|---|---|---|
Multi Cap | 0.45% - 1.0% | 1.5% - 2.5% |
Flexi Cap | 0.4% - 1.2% | 1.5% - 2.5% |
Lowest Cost Options:
- Multi Cap: Mahindra Manulife Multi Cap at 0.45%
- Flexi Cap: Edelweiss Flexi Cap at 0.48%
The expense ratio difference between the cheapest and most expensive funds in each category can be 0.5% or more. Over 20 years, this compounds significantly.
Always choose Direct plans over Regular plans. The 0.5-1% annual savings in expense ratio alone makes a substantial difference.
👉 Tip: Use Belong's Mutual Funds Explorer to compare expense ratios across funds. Even within the same category, costs vary widely.
Taxation: Same Rules Apply
Both multi cap and flexi cap funds are equity-oriented mutual funds. The same tax rules apply to both.
For NRIs:
Holding Period | Tax Rate | TDS |
|---|---|---|
Less than 12 months (STCG) | 20% | 30% TDS (applicable rate) |
More than 12 months (LTCG) | 12.5% above Rs 1.25 lakh | 12.5% TDS |
The Rs 1.25 lakh LTCG exemption applies per financial year across all equity fund redemptions combined, not per fund.
DTAA Benefits:
If you're in the UAE, the India-UAE DTAA may help reduce tax burden. Proper documentation (Tax Residency Certificate, Form 10F) is required to claim treaty benefits.
For detailed guidance on mutual fund taxation, see our taxation guide for NRIs.
When to Choose Multi Cap Funds
Multi cap funds work well if:
1. You Want Guaranteed Diversification
The 25-25-25 mandate ensures you always have meaningful exposure to all market segments. You won't wake up to find your "diversified" fund is actually 80% large cap.
2. You Believe in Small/Mid Cap Potential
If you're optimistic about India's mid and small-cap growth story but don't want to pick individual small or mid-cap funds, multi cap gives forced exposure to these high-growth segments.
3. You Don't Want to Monitor Fund Manager Decisions
Multi cap's regulatory structure reduces dependence on manager judgment for allocation decisions. The framework provides discipline even if the manager changes.
4. You Have a Higher Risk Appetite
The mandatory small and mid-cap exposure means higher volatility. Only invest if you can stomach 30-40% drawdowns during corrections without panicking.
Top Multi Cap Funds to Consider:
- Nippon India Multi Cap: Largest AUM (Rs 39,000+ Cr), strong track record, diversified across 115-130 stocks
- Mahindra Manulife Multi Cap: Strong 5-year returns (26.43%), lower expense ratio (0.45%)
- ICICI Prudential Multi Cap: One of the oldest funds in category, consistent performer
When to Choose Flexi Cap Funds
Flexi cap funds work well if:
1. You Want Downside Protection
The ability to shift towards large caps during uncertainty provides a cushion. If capital preservation during volatility matters to you, flexi cap offers this flexibility.
2. You Trust a Specific Fund Manager
If you've researched a manager's track record and believe in their approach, flexi cap lets them execute without regulatory constraints.
3. You're Okay with Large-Cap Dominance
Most flexi cap funds maintain 60%+ large-cap allocation. If you're comfortable with this bias (which reduces both risk and potential returns), flexi cap works.
4. You Have Moderate Risk Appetite
The large-cap tilt typically means lower volatility than multi cap. Suitable for investors who want equity exposure without extreme swings.
Top Flexi Cap Funds to Consider:
- Parag Parikh Flexi Cap: Rs 1.19 lakh Cr AUM, value-focused approach, includes international stocks, consistent 22%+ 3-year returns
- HDFC Flexi Cap: Rs 94,069 Cr AUM, 23.45% 5-year returns, balanced approach
- Kotak Flexicap: Rs 56,885 Cr AUM, lowest beta (0.93) among major flexi caps, suitable for conservative investors
A Direct Comparison: Kotak Multi Cap vs Kotak Flexi Cap
Let's compare two funds from the same AMC to see the difference clearly.
Parameter | Kotak Multi Cap | Kotak Flexi Cap |
|---|---|---|
Large Cap Allocation | ~40% | ~55-60% |
Mid Cap Allocation | ~27% | ~20-25% |
Small Cap Allocation | ~28% | ~15-20% |
3-Year Returns | ~18-20% | 18.62% |
Risk Level | Moderately High | Moderate |
Fund Manager Freedom | Limited | High |
(Kotak MF)
Same fund house, same research team, but different outcomes because of regulatory structure.
Kotak Multi Cap must maintain its small-cap allocation even if the manager believes small caps are overvalued. Kotak Flexi Cap can reduce small-cap exposure in such scenarios.
For NRIs: Which Is Better?
As an NRI managing investments from abroad, consider these factors:
Simplicity Preference
Managing investments from the UAE or any other country means less time to monitor. Multi cap's predetermined allocation needs less monitoring since the structure is fixed.
Risk Comfort
If market corrections make you anxious (especially watching from abroad with limited ability to act quickly), flexi cap's defensive capabilities provide comfort.
Holding Period
For 7-10+ year horizons, multi cap's forced small/mid-cap exposure can capture India's growth story more comprehensively. For shorter periods (3-5 years), flexi cap's ability to navigate cycles may prove valuable.
Portfolio Context
If you already have large-cap index funds or NRI fixed deposits, adding a multi cap provides complementary mid/small-cap exposure.
If your portfolio lacks equity exposure, a conservative flexi cap can serve as a core holding.
👉 Tip: Many NRIs use both. A flexi cap as the core holding (50-60% of equity) and a multi cap for additional mid/small-cap tilt (40-50%). This combines flexi cap's stability with multi cap's growth potential.
The GIFT City Alternative
For NRIs seeking tax-efficient equity exposure, GIFT City mutual funds offer unique advantages:
- Zero capital gains tax for non-residents
- No TDS on redemptions
- USD-denominated options available
While GIFT City doesn't have specific "multi cap" or "flexi cap" categories, funds like Tata India Dynamic Equity Fund provide diversified equity exposure with complete tax efficiency.
Explore available options on our GIFT City Mutual Funds Explorer.
Common Mistakes to Avoid
1. Choosing Based Only on Recent Returns
If small caps rallied in the last 3 years, multi cap funds look better. If large caps outperformed, flexi caps shine. Don't chase recent performance.
2. Ignoring Actual Allocation
Some flexi cap funds are essentially large-cap funds in disguise. Always check the actual portfolio allocation before investing.
3. Having Both Without Purpose
Owning 3 flexi cap funds and 2 multi cap funds doesn't provide diversification. It creates confusion. Choose one or two funds with a clear purpose.
4. Not Considering Manager Change Risk
Flexi cap performance depends heavily on the manager. If the manager leaves, the fund's character can change dramatically. Monitor manager changes.
5. Ignoring Currency Impact
For NRIs, your returns also depend on INR/AED (or INR/USD) movement. A 15% fund return becomes 10% if the rupee depreciates 5% against your home currency. Track currency using our Rupee vs Dollar Tracker.
Building Your Portfolio: Practical Allocation
Conservative NRI (Lower Risk):
Component | Allocation | Suggested Fund Type |
|---|---|---|
Core Equity | 60% | Conservative Flexi Cap (like Parag Parikh) |
Debt | 30% | Short-duration or GIFT City FD |
Gold | 10% | Gold ETF or SGB |
Moderate NRI (Balanced):
Component | Allocation | Suggested Fund Type |
|---|---|---|
Core Equity | 40% | Flexi Cap |
Growth Equity | 30% | Multi Cap |
Debt | 20% | Debt fund or FD |
Gold | 10% | Gold ETF |
Aggressive NRI (Higher Risk):
Component | Allocation | Suggested Fund Type |
|---|---|---|
Growth Equity | 50% | Multi Cap |
Tactical Equity | 30% | Small/Mid Cap |
Core Equity | 20% | Flexi Cap |
Use our Residential Status Calculator to confirm your NRI status before investing, and Compliance Compass to ensure regulatory compliance.
The Bottom Line
Multi cap and flexi cap funds both invest across market capitalizations, but their regulatory frameworks create meaningful differences.
Choose Multi Cap if you want:
- Guaranteed diversification across all market caps
- Higher exposure to mid and small-cap growth
- Less dependence on fund manager allocation decisions
- Are comfortable with higher volatility
Choose Flexi Cap if you want:
- Manager flexibility to navigate market cycles
- Potentially lower volatility through large-cap bias
- Trust in a specific manager's judgment
- More defensive positioning during uncertainty
Neither is universally "better." The right choice depends on your risk appetite, investment horizon, and how much you want to rely on fund manager decisions.
If you're uncertain, start with a conservative flexi cap as your core equity holding. Add multi cap exposure once you're comfortable with equity volatility.
Have questions about which fund suits your portfolio? Join our WhatsApp community where NRIs discuss specific funds daily. Download the Belong app to explore GIFT City mutual funds that offer tax-free equity exposure without these categorization complexities.
Make an informed choice based on your goals, not marketing.
Sources:
- SEBI Circular - Multi Cap Asset Allocation (September 2020)
- SEBI Circular - Flexi Cap Introduction (November 2020)
- Business Today - Multi Cap vs Flexi Cap 2025
- Kotak MF - Flexi Cap vs Multi Cap Comparison
- Bajaj Finserv - Fund Allocation Data
- INDmoney - Multi Cap Funds
- INDmoney - Flexi Cap Funds
- Scripbox - Best Flexi Cap Funds
- Angel One - Multi Cap Funds
