Understanding Flexi Cap Funds

3 min read

The Indian market regulator SEBI has been responsive to the needs of existing investors. A new category of multi-cap funds – Flexi Cap Funds was announced on 6th November 2020 by SEBI. As per the circular, minimum investment in equity and equity-related instruments have to be 65% of total assets.

What is a Flexi Cap Fund?

Flexi Cap funds are a type of equity fund that invests in opportunities across the market capitalization spectrum. These types of funds have the flexibility to go dynamically overweight/ underweight depending on their attractiveness. This makes them interesting among all other categories of funds. As per data from AMFI (Association Mutual Funds India), there are 25 Flexi cap type mutual funds. As per the revised SEBI announcement, these funds should have a 65% investment in equities. These fund schemes are open-ended dynamic equity schemes investing across large-cap, mid-cap, and small-cap stocks.

The fund managers of the Flexi cap category are able to invest in all companies without concerns about their size. They can take advantage of high-growth stocks and small growing businesses with strong balance sheets. The managers look for potential earnings along with attractive return ratios and cash flows.

Who Should Invest in Flexi Cap Funds?

The year 2020 made the Indian economy stand still. We saw the Indian economy go through a persistent period of slowdown. This had dulled growth prospects for mid- and small-cap companies. Many such companies have concerns with regards to their company’s stability. Flexi Cap Funds may hold major exposure to large caps during such phases. But if the market turns in favor of mid-caps and small caps their reallocation is done.

The Flexi cap mutual fund is a great choice for investors who have moderate to high-risk appetites. But the investors must have an investment horizon of at least five years to reap the full benefits of such a fund. The small caps in this type of portfolio can be more volatile, which increases the risk on your portfolio. However, large companies are able to balance some of that volatility and provide stability by balancing out these risks.

Things to Keep in Mind Before Investing in Flexi Cap Mutual Funds

There are many different types of funds, but it is important to consider your investment objectives before you invest. Having a mix of top-down and bottom-up approaches is helpful. It prepares your portfolio for any opportunities that arise both with large-cap stocks as well as smaller ones. A fixed or static strategy on mid-cap exposure will not work. Thus, a good Flexi cap fund assesses allocation across large/ mid/ small cap and re-balances on a periodic basis. For making this decision certain fund houses rely on in-house models. Given the prevailing market conditions, a 0-50% allocation to small and mid caps is optimal. The fund manager invests the remaining amount in large caps.

Flexi Cap mutual funds offer a diverse portfolio that balances risk and return aspects pretty well. The fund also delivers steady returns even during times of bear market phases, making it perfect for the long-term investor. So, your investment horizon should be for a longer term if investing in Flexi cap mutual funds.

Difference Between Flexi Cap Funds vs Multi-Cap Funds

Key Differences

  • The most important factors to consider in investing are your risk appetite and investment needs. You should also take into consideration the current asset allocation of your portfolio and align it with your target goal.
  • Investing in multi-cap funds can help you get the best of both worlds. You will be able to invest in a variety of stocks. While large caps investments also provide some stability if your portfolio is on the more risky side. 
  • Flexi Cap Funds let you invest with confidence. You must rely on the fund manager’s skill when it comes to making good asset allocation decisions. Invest in Flexi cap funds of the fund managers who have a strong long-term track record of success.

Compare Flexi Cap Vs Multi-Cap Mutual Fund

ParticularsFlexi Cap FundMulti Cap Fund
Exposure to EquityMinimum 65%Minimum 75%
Market Cap AllocationThere is no mandateYou are free to invest across market caps
Discretion of Fund managerThe fund manager is free to choose from across marketThe fund manager is only free to choose the stocks from the given market cap.

Takeaway:

SEBI’s very purpose of creating different mutual fund categories is to provide more clarity for investors. Each category offers a range of merits depending on your risk appetite, investment needs, and preferences. Multicap funds are suitable for those seeking steady growth over time. While Flexi caps can offer better returns in volatile markets. It generates returns when there may be an opportunity cost. Such instances include uncertainty about future market conditions due to geopolitical risks like trade wars or political instability. 

As always, you should consult with your ShareIndia financial advisor before making any investment decisions. The above details will help you make informed decisions based on your investment preferences but for more customized recommendations and live market updates, check our live updates by our experts on our telegram channel.

Disclaimer: Any Advice or information in the post is general advice for education purpose only and is not responsible for generating any trading profits for anyone, please do not trade or invest based solely on this information.

Leave a Reply

Your email address will not be published.