Fund Types · Chapter 5 / 35
Multi Cap vs Flexi Cap — the November 2020 split, explained
Multi Cap has hard 25-25-25 mandates per market-cap band. Flexi Cap leaves the mix to the fund manager.
For three years after SEBI's 2017 categorisation overhaul, Multi Cap funds were defined loosely: "diversified across large-, mid- and small-cap stocks" with no specific allocation floors. The regulator concluded too many funds in this category were closet large-caps. So in November 2020 the rules tightened — and a new category was created for the original flexibility.
The new Multi Cap
Effective January 2021, every Multi Cap fund must hold at least:
- 25% in large-cap stocks
- 25% in mid-cap stocks
- 25% in small-cap stocks
The remaining 25% can be anywhere. The aim is genuine cross-cap diversification: investors get explicit small-cap exposure without separately holding a small-cap fund.
The new Flexi Cap
SEBI also created Flexi Cap, which has only one rule: at least 65% in equity. The fund manager chooses the market-cap mix freely. In practice, most pre-2020 Multi Caps reclassified themselves as Flexi Cap to preserve managerial discretion.
What this means for investors
| If you want… | Pick… |
|---|---|
| Guaranteed small-cap exposure baked in | Multi Cap |
| Manager free to tilt between large and mid as opportunities arise | Flexi Cap |
| Higher volatility tolerance, want at least 25% small-cap | Multi Cap |
| Lower volatility tolerance, prefer large-cap-heavy tilt | Flexi Cap |
Drawdown comparison
Multi Cap funds (with their mandatory 25% small-cap floor) carry meaningfully higher drawdown risk than Flexi Cap. During a 2020-style correction, the difference between a 25% small-cap-floor portfolio and a 5% small-cap-tilted Flexi Cap is material — possibly 8-12 percentage points more drawdown for the Multi Cap.
Don't double-count
Holding both a Multi Cap and a Flexi Cap typically duplicates large-cap exposure without adding much real diversification. Pick one as the diversified core.
Sources
- SEBI — Asset Allocation of Multi Cap Funds (Circular dated 11 September 2020) · accessed Jun 2026
- SEBI — Introduction of Flexi Cap Category (Circular dated 6 November 2020) · accessed Jun 2026