On February 26, 2026, SEBI's Categorization and Rationalization of Mutual Fund Schemes circular raised the minimum equity requirement from 65% to 80% for four categories: Value, Contra, Focused, and Dividend Yield funds. Large Cap, Sectoral, Thematic, and ELSS Tax Saver funds already required a minimum of 80% equity before this circular, so nothing moved there beyond a new portfolio overlap discipline for Sectoral and Thematic schemes specifically, a change we covered in our earlier article on gold and silver inside equity mutual funds.

Eight categories now share the same 80% floor. Two of the largest equity categories in the country did not move at all. Flexi Cap funds remain at a 65% minimum equity requirement, and Multi Cap funds remain at a 75% minimum, made up of at least 25% each in large cap, mid cap, and small cap stocks. Large and Mid Cap funds also stayed where they were, a combined 70% minimum split evenly between the two segments. SEBI's circular widened the gap between these two groups rather than closing it.

Flexi Cap funds are, by design, the least constrained category in the entire equity lineup. A Flexi Cap manager can hold 80% in large cap stocks one year and 60% in small caps the next, provided total equity never drops below 65%. There is no requirement to hold any minimum amount in any particular market cap segment, only the 65% equity floor itself, unchanged since the category was created in November 2020.

Multi Cap funds sit in the middle. They must always hold at least 25% each in large cap, mid cap, and small cap stocks, a rule with no exceptions regardless of market conditions, which puts a hard floor under total equity at 75%. The remaining 25% of the portfolio is where a Multi Cap manager has any real discretion at all.

Before this circular, a Value fund and a Flexi Cap fund both worked from the same 65% equity floor, and the practical difference between them was mostly about strategy, one following a value discipline, the other with no strategy constraint at all. After February 2026, that comparison no longer holds. A Value fund now has only 20% of its portfolio available for gold, silver, InvITs, and debt combined, while a Flexi Cap fund still has up to 35% available for the same purposes. The same widening applies to Contra, Focused, and Dividend Yield funds relative to Multi Cap.

Flexi Cap and Multi Cap did not gain anything new in this circular. What changed around them did the work instead. They are now, alongside the smaller Large and Mid Cap category, among the only diversified equity categories with meaningfully more room than 20% for anything other than pure equity, simply because SEBI chose not to raise their floors while raising almost everyone else's.

The buffer shown is the gap between a category's minimum equity floor and the 65% threshold that determines equity oriented tax treatment. A wider buffer means a fund can use its full non core allowance and still stay well clear of losing that tax status.

Flexi Cap and Multi Cap ended up with more non core room than their peers, but the two categories arrived there in very different ways, and that difference matters once a fund manager actually tries to use the room.

A Flexi Cap fund's entire 65% equity floor is a single number with no internal structure. A manager who wants to add a meaningful gold and silver position has to find that allocation somewhere inside a portfolio that otherwise has complete freedom, and the arithmetic leaves very little margin.

Use the full 35% non core allowance and the fund's equity share sits at exactly 65%, precisely the threshold at which its gains stop qualifying for equity tax treatment. There is no buffer left for a market move, a redemption, or a slow drift that quietly pushes equity below that line before the next portfolio review.

A Multi Cap fund cannot make the same mistake, structurally. Because at least 25% must sit in each of large cap, mid cap, and small cap stocks at all times, the fund's equity share cannot fall below 75% even if the manager uses the entire available non core room. That leaves a 10 percentage point buffer above the 65% tax threshold, a buffer a Multi Cap fund gets automatically, not because any manager chose caution, but because the category's own structure will not allow equity to fall any further.

The fund with total freedom is now the one running closest to the edge, while the fund with the least freedom carries the largest safety margin, built entirely into its category rules.

None of this means every Flexi Cap fund will actually use its full 35% headroom, or that every Multi Cap fund will use its full 25%. SEBI has created room, not a requirement, and adoption through the middle of 2026 has been selective. But the incentive structure is now visibly different for the two categories.

A Flexi Cap manager who wants meaningful gold and silver exposure has every reason to stop well short of the ceiling, since running close to it removes any margin for error on the fund's tax status. A Multi Cap manager faces no equivalent constraint. The 75% floor holds regardless of how the remaining 25% is used, which makes Multi Cap funds a structurally safer place to build a larger gold and silver position without touching the fund's tax treatment.

The overlap discipline introduced in the same circular, a cap of 50% portfolio overlap between similar schemes, applies to Sectoral, Thematic, Value, and Contra funds specifically. It does not reach Flexi Cap or Multi Cap funds directly, which removes one more reason for those two categories to behave like their higher floor peers.

If you hold a Flexi Cap fund alongside a Value or Large Cap fund, expect the Flexi Cap fund to be the one whose gold, silver, and debt exposure moves around the most over time, and expect its equity share to stay meaningfully above 65% in practice even though the rules would technically permit it to run right at the line. A fund manager handling real money has little reason to sit exactly on a tax cliff, whatever the category ceiling allows.

If you hold a Multi Cap fund, the picture is more settled. Its rigid internal structure means the fund cannot drift into losing its equity tax status through non core allocation alone, which is not true of Flexi Cap, Value, Contra, Focused, or Dividend Yield funds in the same way.

That structural safety is not a reason to prefer one category over another, and it says nothing about expected returns. It is simply a fact worth knowing about how differently these categories are now built to behave. As always, a fund's own factsheet, not its category label, is where its actual current equity share and any gold or silver holding will show up.

Note: The 80% minimum equity mandate from SEBI's February 26, 2026 circular applies directly to Value, Contra, Focused, and Dividend Yield funds, alongside Large Cap, Sectoral, Thematic, and ELSS Tax Saver funds that were already there. Flexi Cap and Multi Cap funds were not moved to 80%. SEBI left them at their existing floors of 65% and 75%. What follows is not about a mandate that reaches Flexi Cap and Multi Cap funds directly. It is about how being the two large categories SEBI chose not to touch is, on its own, reshaping how both are likely to behave.

Disclaimer: This article is for general informational purposes only and does not constitute investment, tax, or legal advice. Mutual fund investments are subject to market risk. Regulatory and tax details described here reflect SEBI circulars and the Income Tax Act, 2025, available as of July 2026, and may change with future notifications or budget announcements. Confirm the current equity allocation and any gold or silver holding of a specific scheme in its latest factsheet before investing, and consult a qualified tax professional or SEBI registered investment adviser for guidance specific to your situation.