Flexi Cap vs Multi Cap vs ELSS :If you want to create wealth through long-term investment, then mutual funds are considered the best way. Especially equity funds are very popular because of giving high returns through investment in the stock market. But many times investors are faced with the question that in which category of equity mutual funds should they invest? Although equity funds include many categories of schemes ranging from large cap, large and mid cap, mid cap and small cap to value funds and thematic funds, but in terms of diversification and wealth creation, flexi cap, multi cap and equity linked savings scheme (ELSS) are very popular fund categories. Next we will look at the performance of the top funds coming in these three categories and also see what is the specialty of these three categories.
Multi cap funds: the benefit of diversification
Multi Cap Funds are equity mutual funds whose portfolio should always include shares from all three segments, large-cap, mid-cap and small-cap. The fund manager has to maintain at least 25% investment in shares from each of these segments at all times. This means that the portfolio of a multi-cap fund should always contain 25% shares from large-cap, mid-cap and small-cap segments. The remaining 25% allocation can be done by the fund manager as per his wish. Due to this restriction, the level of diversification based on the segment in the investment of the multi-cap fund is always maintained. As per SEBI’s definition, at least 75% investment of any multi-cap fund must be in equity or equity-related instruments.
Returns of Top Multi Cap Funds
Quant Active Fund – Direct
5 Year Average Annual Return: 35.61%
10-year average annual return: 22.02%
Mahindra Manulife Multi Cap Fund – Direct
5-year average annual return: 30.64%
10 Year Average Annual Return : NA%
ICICI Prudential Multicap Fund – Direct
5-year average annual return: 25.22%
10-year average annual return: 17.54%
Nippon India Multi Cap Fund – Direct
5 Year Average Annual Return: 28.30%
10-year average annual return: 17.65%
Invesco India Multicap Fund – Direct
5 Year Average Annual Return: 26.62%
10-year average annual return: 18.34%
Baroda BNP Paribas Multi Cap Fund – Direct
5-year average annual return: 26.22%
10-year average annual return: 17.34%
Flexi Cap Fund: Focus on growth potential
Flexi Cap Fund is also a very popular category under equity mutual funds. The biggest feature of a flexi cap fund is that the decision of which stock will be included in its portfolio is completely in the hands of the fund manager. Like a multi-cap fund, there is no restriction on investing a certain part of the portfolio in any category of shares including large cap, mid cap, small cap. Due to this, the fund manager can invest anywhere just by looking at the possibility of better growth, which gives scope for better returns in the long term. If the fund manager feels that large caps are performing well, then they can invest a large part of the fund in large-cap stocks. At the same time, investment in mid-cap or small-cap stocks can also be reduced or increased according to the market performance if needed. According to SEBI’s definition, at least 65 percent of the flexi cap fund should be invested in equity.
Returns of Top 5 Flexi Cap Funds
Quantum Flexi Cap Fund – Direct
5 Year Average Annual Return: 38.49%
10-year average annual return: 22.42%
JM Flexicap Fund – Direct
5 Year Average Annual Return: 29.20%
10-year average annual return: 20.29%
Parag Parikh Flexi Cap Fund – Direct
5-year average annual return: 27.61%
10-year average annual return: 19.49%
Motilal Oswal Flexi Cap Fund – Direct
5-year average annual return: 19.66%
10-year average annual return: 17.89%
Franklin India Flexi Cap Fund – Direct
5-year average annual return: 25.85%
10-year average annual return: 17.50%
Equity Linked Savings Scheme: Tax savings along with returns
Equity Linked Savings Scheme (ELSS) can be included in the highly successful equity mutual fund category. As per SEBI rules, it is mandatory to invest at least 80% of ELSS in shares. Like flexi cap funds, the fund manager has to decide in which shares the investment will be made through ELSS. The special thing is that ELSS is also a tax saving scheme, which is a big reason for its popularity. In this scheme, income tax exemption is available under section 80C on investment of up to Rs 1.5 lakh during a financial year. Being a tax saving scheme, a lock-in period of 3 years is also applicable on the investment made in it. That is, ELSS units can be redeemed only after 3 years of allocation.
Returns of Top 5 ELSS Funds
Quant ELSS Tax Saver Fund – Direct
5 Year Average Annual Return: 38.66%
10-year average annual return: 25.01%
Bank of India ELSS Tax Saver Fund – Direct
5-year average annual return: 30.48%
10-year average annual return: 19.66%
SBI Long Term Equity Fund – Direct
5-year average annual return: 28.34%
10-year average annual return: 16.93%
JM ELSS Tax Saver Fund – Direct
5-year average annual return: 26.46%
10-year average annual return: 19.06%
DSP ELSS Tax Saver Fund – Direct
5-year average annual return: 25.71%
10-year average annual return: 18.61%
Bandhan ELSS Tax Saver Fund – Direct
5-year average annual return: 26.72%
10 year average annual return: 18.44%
What is the right investment for you?
All the three categories of equity mutual funds mentioned above have their own merits, which investors can choose based on their investment preferences. If you want to focus more on diversification, you can consider multi-cap funds. But if you want to invest by trusting the wisdom of the fund manager, then flexi-cap funds are a good option. On the other hand, if you want to save income tax along with better returns and have no problem with a lock-in of 3 years, then ELSS can be a great option for you. Anyway, investment in equity mutual funds should be done for a period of at least 5 years or more. If you invest through Systematic Investment Plan (SIP), then you will be able to take advantage of compounding as well as cost averaging. Whatever the fund category, before deciding to invest, keep in mind that being equity schemes, all these three types of funds have market risk. Therefore, make an investment decision keeping in mind your risk profile.
(Disclaimer: Investments made in mutual funds are directly affected by the fluctuations in the stock market. Our aim is not to advise investing in any fund, but only to provide information. Take any investment decision only after consulting your investment advisor.)
