As an investor, you must be looking for a mutual fund that does it all, capturing the stability of large-cap stocks, the growth potential of mid-caps, and the high-reward thrill of small-caps.
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And most likely, you must have got two options: multi-cap and flexi-cap funds. These two powerhouse categories promise to diversify your portfolio across market caps, but they are a bit different in their approach. In this blog, we will unpack the key differences between multi-cap and flexi-cap funds, spotlight their unique benefits, and help you figure out which one is a better option.
What are Flexi-Cap Funds?
Flexi-cap funds are the ones that invest across market caps: large, mid, and small. The only catch is that the fund manager can decide the allocation to each category. The only thing that they have to look after is that the scheme invests at least 65% in equities.
What are Multi-Cap Funds?
Multi-cap funds are the ones that have to invest at least 75% in equities, out of which SEBI has made it mandatory for them to invest 25% in each large, mid, and small-cap.
What Are the Benefits of Investing Across Market Caps?
Diversification: By choosing this, you get to diversify your investments across different sectors.
Return maximisation: If you invest in such broad categories, there is a chance of maximising your returns, as not all stocks will move in one direction.
Balanced growth: Investing across the market caps allows one to generate balanced returns. For example, large-caps provide a safety net, while mid-cap and small-caps maximise returns.
List of the top 5 multi-cap funds by AUM as of March 2025
| Fund Name | AUM (₹ crore) | 3 year | 5 year |
|---|---|---|---|
| Nippon India Multicap Fund | 35,353 | 21.35% | 35.50% |
| SBI Multicap Fund | 17,579 | 16.52% | – |
| HDFC Multicap Fund | 14,650 | 20.91% | – |
| Kotak Multicap Fund | 14,374 | 22.67% | – |
| ICICI Prudential Multicap Fund | 12,901 | 19.27% | 31.37% |
Source: 1 Finance Research
List of the top 5 flexi-cap funds by AUM as of March 2025
| Fund Name | AUM (₹ crore) | 3 year | 5 year |
|---|---|---|---|
| Parag Parikh Flexi Cap Fund | 88,004 | 16.91% | 31.79% |
| HDFC Flexi Cap Fund | 64,124 | 22.03% | 34.19% |
| Kotak Flexi Cap Fund | 45,433 | 14.47% | 25.78% |
| UTI Flexi Cap Fund | 23,403 | 7.33% | 22.87% |
| Aditya Birla Sun Life Flexi Cap Fund | 20,079 | 13.55% | 27.26% |
Source: 1 Finance Research
If we look at the 3-year and 5-year returns of both flexi-cap and multi-cap, we can see that the multi-cap funds have performed marginally better than the flexi-cap. Does that mean that you should invest in multi-cap?
Investing solely on past returns is not a recommended practice. You see, just like returns, we must also check other things like expense ratio, your goals, risk appetite, various ratios, etc., but for this blog, we will look at how the funds perform when the markets crash. For this we will look at sortino and downside capture ratios.
What is Sortino Ratio?
The sortino ratio is a performance metric that measures the investment returns relative to its downside risk. It means that it determines how well an investment performs after adjusting for the risk.
A higher sortino ratio indicates a better risk-adjusted return, meaning the investment generates more return for each unit of downside risk.
What is Downside Capture Ratio?
The downside capture ratio measures how an investment performs compared to the benchmark during periods of market crash, indicating the extent to which the investment captures the benchmark’s losses.
A lower downside capture ratio means that the fund has performed better than the benchmark.
Sortino and downside capture ratio for multi-cap funds (last 5-year average)
| Fund Name | Sortino Ratio | Downside Capture Ratio |
|---|---|---|
| Nippon India Multicap Fund | 0.1694 | 90.3072 |
| SBI Multicap Fund | 0.1120 | 71.4647 |
| HDFC Multicap Fund | 0.0979 | 90.7589 |
| Kotak Multicap Fund | 0.0905 | 92.1465 |
| ICICI Prudential Multicap Fund | 0.1706 | 83.2302 |
Source: 1 Finance Research
Sortino and downside capture ratio for flexi-cap funds (last 5-year average)
| Fund Name | Sortino ratio | Downside capture ratio |
|---|---|---|
| Parag Parikh Flexi Cap Fund | 0.2108 | 62.1394 |
| HDFC Flexi Cap Fund | 0.1838 | 86.5673 |
| Kotak Flexi Cap Fund | 0.1356 | 97.7668 |
| UTI Flexi Cap Fund | 0.1314 | 88.4330 |
| Aditya Birla Sun Life Flexi Cap Fund | 0.1481 | 95.0196 |
Source: 1 Finance Research
Now, if we look at the numbers, we can see that when the market crashes, flexi-cap funds provide better risk-adjusted returns, meaning that their Sortino ratio is higher compared to the multicap funds.
Even the downside capture ratio for flexi-cap funds is better than for multi-cap funds. Meaning the lower the better, flexi-cap funds fall less compared to their benchmark in comparison with the multi-cap funds.
Flexi-Cap Funds vs. Multi-Cap Funds: Which One Should You Opt for?
Both multi-cap and flexi-cap funds offer diversification across market caps, but they have a slightly different approach. Multi-cap funds have a fixed allocation to large, mid, and small-cap stocks. Flexi-cap funds, on the other hand, offer flexibility to fund managers to adjust allocations based on market conditions.
While flexi-cap funds have shown superior performance in terms of Sortino ratio and downside capture during market crashes. Select a fund based on your risk appetite and needs; consult a SEBI-registered investment advisor for guidance.
