Large-cap, Midcap, Small-cap, Multi-cap and Flexi cap – Which Mutual Fund is Best for You?

The number of people investing in mutual funds is expanding significantly. To increase the investment options, the Securities and Exchange Board of India has 12 different equity mutual funds. An equity fund is a branch of mutual funds that invests in the share or assets of companies. This type of investment creates capital for the long term and allows investors to invest in different wealth creation tools and assets. 

If you are also looking to invest in a mutual fund and want to learn what is flexi cap fund, large-cap fund, and more, let’s go ahead and find out. 

Different Types of Mutual Funds

We understand that it’s normal to get confused between different types of mutual funds. Here, we are going to explain to you what is flexi cap fund, large-cap, mid-cap, multi-cap and small-cap funds. All the equity mutual funds are differentiated based on category. In this guide, we will focus on mutual funds based on market capital segmentation. Now, these companies range from the top 100 to the start-ups, and though they all offer different profits and risks, it’s important to understand everything about them before you start investing. 

mutual fund
Source- Shutterstock 

Large-cap Mutual Funds

As per SEBI regulations, in large-cap funds, around 80% of the investment fund is invested in the assets of large-cap companies. Large-cap companies include the top 100 companies as per their profit generation. They are highly reputed in the market and are immune to market trends. No matter how much the market fluctuates, the large-cap companies are known to not crack under pressure and offer generous returns. They generate high returns and pose a low threat compared to small-cap and mid-cap funds. 

A best large-cap mutual fund is a suitable option if you are an investor with a lower risk appetite and want to invest in a mutual fund where you can get steadier returns. 

Mid-cap Mutual Funds 

The mid-cap companies are ranked from 101 to 250 based on their market capitalization. The mid-cap companies are not immune to market trends and are often unstable. However, if you invest at the right time in mid-cap companies and have a risk appetite, you can get significantly higher returns than large-cap companies. It would be best to research the companies performing relatively well in the market, a good fund manager and the right time to invest the money. However, while investing, don’t overlook the risks. 

Small-cap Mutual Funds 

Small cap includes companies ranking below 250. The shares fluctuate as per the market trends. The small-cap funds generate the highest returns, although they pose the highest risk in terms of investment. The stocks can grow twofold or triple in a brief period or fall exceptionally without any heads up. 

Investing a small portion of your portfolio in small-cap funds is generally advised to avoid the risks. The small-cap funds are best for those looking to invest for a brief period and generate higher returns. 

mutual fund statics
Source: Shutterstock 

Multi-cap Mutual Funds 

In multi-cap funds, you must invest around 75% of your funds in mutual funds. This means 25% in each fund type. This will allow you to build a corpus by investing in different schemes and diversifying your portfolio. Considering large-cap offers stability and the medium and small-cap offer higher returns, you can invest small portions in the risky shares and a big portion in the stable large-cap fund to reduce the chances of losing investment in case of market fluctuations. 

What is Flexi cap Funds?

Now you must be wondering what is flexi cap fund? Is it the same as the multi-cap fund? The dynamic and open-ended funds allow investors to invest their funds in different cap companies. An investor will have to allocate 65% of their funds in equity. Though it may sound similar to multi-cap funds, there’s no particular cap on how much you can invest in a particular company. This also allows fund managers to explore investment opportunities to get higher returns. 

Parameters to Check Which Fund is Best for You 

While all the equity mutual fund types have pros and cons, it’s best to consider a few factors before deciding which one you should invest in. there are numerous options available when it comes to investing in mutual funds, and it is normal to get confused. Here are some of the factors that you should consider when it comes to choosing the best mutual fund to invest in. 

  1. Identify your investment goal 

It is essential to understand what exactly you are expecting from your investment. Are you looking for long-term investment and capital generation or short-term? Do you want to buy a house, or are you saving for retirement? Think about every point thoroughly. 

  1. Check the fund’s past performance 

Before investing in any scheme or fund, it is essential to check the fund’s past market performance to know whether it has a history of generating higher returns or crashing down upon checking the past performance, setting a benchmark, and then calculating the profit and loss. Observe how much the market volatility affects that particular scheme and only then zero out that fund. 

  1. Know your expense ratio and exit load 

Don’t forget that your mutual funds come with extra price tags, and you should be aware of them while investing. Expense ratio and exit load are two main expenditures you will have to bear as an investor. The expense ratio includes the fund for paying to the fund manager, marketing team, and more. At the same time, an exit load is a penalty fund levied upon the investor in case of premature exit. Though the exit load varies as per the funds you invest in, you should be aware if you ever face financial distress and need to exit a fund. 

Apart from these three factors, you need to check the taxation benefits, assets under management, assess the investment risk, hire an experienced fund manager, and the time horizon. You can do more thorough research by visiting the official site of SEBI and reading the guidelines. So now that you know what is flexi cap fund, large-cap fund, small-cap, mid-cap, and multi-cap fund, you can easily make the decision about which fund is best.

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