Multi-asset vs flexi-cap mutual funds: Which is better for an investor's financial goal?

Choosing the right mutual fund is key to achieving your financial goals. Among the many options, Multi-Asset and Flexi-Cap Funds stand out for its diversified strategies. While both aim to optimise returns and manage risk, the funds differ significantly in approach, asset allocation, and flexibility. Understanding these differences—rather than its recent performance—can help investors align their portfolios with their risk appetite, investment horizon, and financial aspirations. This piece can help make investors make an informed decision.

Yash Sedani, Assistant Vice President, Investment Strategy at 1 Finance, said, “Multi-asset funds have recently gained popularity by offering exposure across asset classes i.e., equity, debt, and commodities like gold and silver, under a single product. Their returns have also outpaced those of many Flexi-cap and traditional equity funds in recent times, primarily due to the rally in gold prices.” 

However, he also said that investors must understand what they are buying and in what proportions they are buying it. “As of February 2025, multi-asset funds hold an average of 60.7% in equities—an allocation that may be too aggressive for many investors depending on their risk profile and financial goals.”

Investors must also understand that multi-asset funds invest across multiple asset classes like equity, debt, and gold (or other commodities), offering built-in diversification. On the other hand, flexi-cap funds invest only in equities but have the flexibility to move across large-cap, mid-cap, and small-cap stocks depending on market conditions. Experts suggest flexi-cap funds might be better suited for changing market cycles, whereas multi-cap funds can provide stability in the long term.

Unlike personalised financial planning—where asset allocation is tailored to an individual’s life stage, risk appetite, and goals—multi-asset fund allocations are at the discretion of the fund manager. This means that the mix of equity, debt, and commodities in such funds may not align with what is optimal for the investor.

“While past performance—especially driven by recent gold gains—can make these funds appear attractive, it should not be the sole basis for investment decisions,” said Sedani.

In conclusion, investors should consult a qualified financial advisor to determine their ideal asset allocation as per their financial goals. Instead of relying on bundled multi-asset products, they can achieve better diversification by using standalone, transparent instruments in each asset class. “For instance for equity exposure, flexi-cap funds provide diversification and agility, with fund managers better positioned to navigate market caps based on prevailing conditions,” said Sedani.