Flexi Cap vs. Multi Asset Allocation Mutual Funds: Which one is best for you?

Time of India

17-05-2025

Flexi cap funds
Multi asset allocation funds
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Here are key differences between these two mutual fund categories
Feature
Flexi Cap Fund
Multi Asset Allocation Fund
Asset class focus
Only equity (large, mid, small caps)
Equity, Debt, Gold/Commodities
SEBI Mandate
Min. 65% in equity
Min. 10% in each of 3 asset classes
Risk Level
Moderately high to high
Moderate
Return Potential
Higher over long term
Balanced returns, lower volatility
Portfolio Management
Active stock-picking across market caps
Asset rebalancing among asset classes
Investment Horizon
5+ years
3–5 years
Which one suits you best?
Way forward for these categories
With the growing variety of mutual fund options, investors often face the dilemma of choosing the right type of fund for their goals. Two popular choices that offer diversification and dynamic strategies are Flexi Cap Funds and Multi Asset Allocation Funds. While they may seem similar in terms of flexibility and diversification, they cater to different investor needs and operate under different mandates.Flexi Cap Funds are equity-oriented mutual funds that invest across large-cap, mid-cap, and small-cap stocks. These funds are designed to give the fund manager complete flexibility in allocating investments across market capitalizations, based on prevailing market conditions.According to the SEBI mandate, flexi cap funds must invest a minimum of 65% of their assets in equity. The remaining allocation can vary, allowing the manager to shift between large, mid, and small-cap segments as opportunities arise. These funds are ideal for investors who have a long-term investment horizon (at least five years) and are comfortable with moderate to high risk. The dynamic nature of these funds allows them to adapt to changing market trends, making them suitable for growth-oriented investors.Multi Asset Allocation Funds aim to reduce portfolio risk by investing in at least three different asset classes — typically equity, debt, and gold or other commodities. SEBI mandates that a minimum of 10% of the portfolio be invested in each asset class. These funds are automatically rebalanced to maintain the asset mix, offering both stability and diversification. Since they are not purely equity-focused, multi asset allocation funds tend to have lower volatility and are well-suited for moderate-risk investors who are looking for consistent returns over a medium to long-term horizon (3–5 years).Choosing between the two depends on your financial goals and risk appetite. If you are aiming for higher long-term growth and are comfortable with equity market fluctuations, a flexi cap fund may be the right choice. However, if you're seeking a balanced investment with exposure beyond equities and lower portfolio volatility, a multi asset allocation fund could be more appropriate. In fact, many investors may benefit from holding both in their portfolio, using flexi cap funds for growth and multi asset allocation funds for balance and diversification.While both fund types offer flexibility and adaptability, understanding their core structure and objective is key to making the right investment decision. Matching your investment horizon and risk tolerance with the right fund category will help ensure a more effective and aligned portfolio.For the flexi cap funds, Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance said that, 'A broad-based structural uptrend is yet to emerge. However, investors should continue to invest in flexi cap types of funds and let the fund managers do the stock picking of the sectors they are comfortable with. The selection of a good fund manager based on research and their investment philosophy will be very important.'While sharing the way forward for multi asset allocation funds, Vishal Dhawan, CEO, Plan Ahead Wealth Advisors, a wealth management firm in Mumbai comments that one can hold multi asset allocation funds in the portfolio especially in volatile markets as they can help preserve capital and deliver more stable returns over time compared to pure equity funds.'Gold, for instance, has emerged as one of the strongest-performing asset classes in recent years, especially during times of global uncertainty. Its presence in the portfolio can act as a natural hedge, offering protection when equities are under pressure. However, it is important for investors to understand the fund's asset allocation model and strategy as this will influence how the fund performs across different market cycles,' he adds.One should always choose a scheme based on risk appetite, investment horizon, and goals.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on [e-mail] alongwith your age, risk profile, and Twitter handle.