Choosing Between Multicap and Flexicap Mutual Funds for Long-Term SIP Investments
Multicap or flexicap mutual fund for a 20-year SIP? Expert explains what investors should choose
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Investors must choose between multicap and flexicap mutual funds based on their risk tolerance. Multicap funds have fixed allocations across large, mid, and small-cap stocks, while flexicap funds allow for dynamic management based on market conditions. A long investment horizon can enhance wealth creation.
- 01Multicap funds require a minimum of 25% allocation to large-cap, mid-cap, and small-cap stocks as per SEBI regulations.
- 02Flexicap funds provide fund managers with the flexibility to adjust allocations based on market conditions.
- 03Investors with a 20-year horizon can still benefit from compounding, regardless of starting age.
- 04A suggested asset allocation for a 37-year-old investor is 65% equity and 35% debt.
- 05Investing should start with defining financial goals rather than just the amount to invest.
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Choosing the right mutual fund category can be challenging for first-time investors. Samir Shah, Founder of Investa Financial, explains the differences between multicap and flexicap funds, emphasizing that multicap funds adhere to strict SEBI regulations requiring a minimum 25% investment in each market cap segment. In contrast, flexicap funds allow fund managers to dynamically allocate investments based on market conditions, offering greater flexibility. Shah advises that the choice between the two depends on an investor's risk tolerance. For those comfortable with volatility, multicap funds may enhance long-term returns, while flexicap funds suit those seeking a smoother investment experience. With a 20-year investment horizon, Shah reassures that investors can still harness the power of compounding. He stresses that investment planning should start with defining financial goals and suggests a broad asset allocation of 65% equity and 35% debt for investors in their late thirties. Ultimately, the focus should be on building a goal-oriented investment plan.
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Investors can enhance their wealth over time through disciplined investing in mutual funds.
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