Before 2020, flexi cap funds could invest anywhere across market caps based on the manager's view. Then SEBI introduced a new multi cap category that mandates a minimum 25% allocation each to large cap, mid cap, and small cap stocks.
The difference in practice
A flexi cap fund might hold 80% in large caps during a risk-off phase. A multi cap fund can't — it must hold at least 25% in small caps regardless of conditions. That forced diversification is both a feature and a limitation.
What this means for returns
Multi cap funds structurally hold more mid and small cap exposure, which historically has produced higher long-term returns with higher volatility. Flexi cap funds can dial that exposure down when the manager turns cautious, which can cushion downside but also miss rallies.
Which to pick
If you want a rules-based equity allocation across market caps without dealing with rebalancing, multi cap is simpler. If you trust a specific manager's tactical calls, flexi cap gives them more rope. Many investors hold both — one for stability, one for opportunism.
A word on overlap
Don't own five different flexi cap funds thinking you're diversified. They likely hold the same top 20 stocks. Use our overlap tool to check portfolio duplication before you buy.