Multi-cap funds mandated 25% each in large, mid, small caps

Many investors confuse multi-cap and flexi-cap funds because both can invest across large, mid and small-cap companies, but their mandates differ, The Federal reports. Multi-cap funds must allocate at least 25 per cent each to large, mid and small-cap stocks as per SEBI classification. Flexi-cap funds have no such segment-wise minimum, giving managers greater freedom to shift allocation between market caps.

Recent data from Value Research as of May 2026 showed multi-cap funds outperformed flexi-cap funds over five years, partly because their mandatory 25 per cent mid and small-cap allocation benefited from strong performance in those segments. The Federal cautions this does not prove multi-cap funds are inherently superior; performance depends on market cycles. Flexi-cap funds can reduce exposure to overvalued segments, which may protect returns during corrections.

There is no universally better category. Suitability depends on an investor's risk appetite, horizon and trust in the fund manager. Holding both funds may not provide meaningful diversification as portfolios often overlap. The key is to choose based on desired investment structure, not recent performance.