What Is Flexi Cap Fund? Meaning, Features & Benefits
There are funds for those investors who want to invest in the stock market. While some funds invest in companies only others invest only in companies. But those investors who want to invest in all these kinds of companies in a single portfolio should go for the flexible capital mutual funds dot.
By investing in companies of different sizes, the fund managers can make changes in their portfolios according to the market and investors’ needs.
What Is Flexi Cap Fund?
Flexi cap fund refers to an open-end equity mutual fund that invests in large-cap, mid-cap and small-cap companies. The fund manager doesn’t need to follow a specific ratio between them but can invest in any of these companies as he wants.
According to SEBI guidelines, at least 65% of a fund’s total assets should be invested in equity and equity-related instruments.
SEBI’s mutual fund categorisation circular sets out the category requirements for flexi cap and other mutual fund schemes.
The rest of the money is invested in other assets according to the investment objective of the scheme.
Flexi cap funds aim to deliver capital gains to the investors by investing in growth-oriented firms.
Flexi Cap Fund Meaning With Example
To understand the meaning of flexi cap fund let’s see one example.
Let’s say there is a flexi cap mutual fund scheme with ₹1,000 crores under its assets. The fund manager can initially distribute it in the following way:
Large-cap stocks: 60%
Mid-cap stocks: 25%
Small-cap stocks: 15%
Now assume that large-cap stocks have become attractive due to some reasons. The fund manager can increase his allocation in large-cap stocks to 75% and decrease it in mid and small-cap stocks. This is because there is no restriction on a flexi cap scheme on the percentage of investment in large, mid and small-cap stocks.
Even though the fund manager can rebalance his portfolio, he may not get better returns.
How Do Flexi Cap Funds Work?
Flexi cap funds work as a combination of the money of different investors and invest it in the shares of different companies with different market value.
Before investing, a fund manager analyses the situation of the company, its performance, financial status, growth and many other factors.
These funds can invest in large-cap companies as well as small-cap companies.
The fund manager can change the asset allocation according to the market conditions.
The returns earned by the investors depend upon the performance of the fund.
Explore mutual fund NAV and returns on Rupix as a starting point for research. Confirm scheme details in the AMC’s latest documents.
Key Features of Flexi Cap Funds
Flexibility in the Allocation of Investment
This scheme does not require any specific allocation in percentages in the investment in large-cap, medium-cap or small-cap stocks. The fund manager can allocate the money according to his own research and analysis.
Diversity in the Equity Market
As this scheme allows the fund manager to invest in different categories and sectors, it diversifies the portfolio of the investors.
Professional Management
The fund manager takes care of the fund by making proper analysis of the companies, keeping track of the market and monitoring the portfolio.
Long-term Focus
This scheme focuses on the long-term appreciation of the money invested by the investors through investments in the equity market.
Different Modes of Investment
You can make different ways of investing in this scheme, such as – SIP or lump sum.
Advantages of Investing in Flexi Cap Funds
Investment Across Various Market Cap
Flexi cap funds allow investing in the shares of big, medium and small companies. Thus, it allows the investors to enter into different segments of the stock market.
Flexibility to the Manager in Changing Market Conditions
The fund managers can make changes in their portfolio according to the changing valuation of the market.
A Diversified Portfolio of Investments
Exposure to different companies and different sectors helps in diversification.
The Potential for Long-term Appreciation
Appreciation of the value of the investments made in the stocks of large-cap, mid-cap and small-cap companies that have strong fundamentals and promising growth prospects can deliver capital gains in the long run.
Risks Related to Flexi Cap Funds
Flexi cap funds, like other equity mutual funds, have various risks associated with them.
Market Volatility: Price variations in the stock market can influence both the NAV and the overall returns from the fund.
Mid and Small Cap Risk: Mid and small-cap stocks have a higher chance of being volatile and less liquid than large-cap ones.
Poor Performance Risk: The fund’s performance may deteriorate due to inappropriate stock selection or underperformance of the chosen ones.
Concentration Risk: A fund may have a significant concentration of risk due to its heavy reliance on a few stocks or industries.
Uncertain Returns: Flexi cap funds do not guarantee that an investor will profit from their initial investment; instead, they carry the danger of losing money if they are poorly managed during a market downturn.
Difference Between Flexi Cap Funds and Multi Cap Funds
Though both schemes invest in large, mid and small-cap companies, both have some differences like:
| Basis | Flexi Cap Funds | Multi Cap Funds |
| Minimum equity exposure | 65% | 75% |
| large cap investment | No fixed minimum | At least 25% |
| mid cap investment | No fixed minimum | At least 25% |
| small cap investment | No fixed minimum | At least 25% |
| Allocation flexibility | More flexible | Subject to fixed minimums |
| Portfolio strategy | Based on fund manager’s assessment | Maintains exposure to all three categories |
Flexi cap funds offer more flexibility than multi cap funds in terms of portfolio allocation, while multi cap funds require a minimum allocation to each category of stocks. Both schemes differ in their portfolio strategies; flexi cap funds allow the fund managers to make decisions based on their assessments, whereas multi cap funds always maintain exposure to all three categories of stocks.
Who Should Invest in Flexi Cap Funds?
Flexi cap funds can be a suitable choice for those investors who want to build wealth through long-term stock market investments.
These funds are appropriate for those investors who can bear the risks and lock their money for five or more years.
These funds attract those investors who want to invest in a variety of market-cap segments but do not want to invest separately in different funds.
However, investors who seek assured returns and have a short-term need for their money should not invest in flexi cap funds.
Guidelines for Choosing a Flexi Cap Mutual Fund
Choosing a flexi cap mutual fund needs due diligence. Here are some guidelines for selecting one:
Performance Analysis: Study the performance of the fund against its benchmark and similar funds over different time horizons.
Expense Ratio: Look at the fund’s expense ratio to understand how much it deducts from the assets to pay for expenses.
Fund Manager Experience: Research the fund manager’s credentials and his ability to navigate the markets.
Portfolio Composition: Look at the fund’s portfolio to see how much it has allocated to large-cap, mid-cap and small-cap stocks and its sectoral exposure.
Risk-Adjusted Returns: Look for a fund with lower volatility and risk rather than one with consistently high returns.
Financial Needs: Pick the fund that fits your financial requirements and time horizon.
Taxation of Flexi Cap Fund in India
Flexi cap fund falls under the taxation of equity-oriented mutual funds if it meets the required conditions.
The taxation of short-term and long-term capital gains for equity mutual funds is as follows:
Applicable from FY 2023-24:
Short Term Capital Gains (STCG): Taxed at 20% on the gains from the sale of qualifying equity mutual fund units held for less than twelve months.
Long Term Capital Gains (LTCG): Taxed at 12.5% on the total long-term capital gains from the sale of qualifying equity mutual fund units held for twelve months or more than twelve months in a FY if the gains exceed ₹1.25 lakh.
Applicable surcharge and cess, if any, will be levied on the amount of tax, so it’s essential to consult the relevant laws and your tax advisor to know your liabilities.
Check the Income Tax Department’s guidance on capital gains and obtain advice for your own circumstances.
Conclusion
Flexi cap funds allow the investors for the flexibility to invest in companies with different market valuation without any specific allocation to them. By investing in such funds, the fund managers can make changes in their portfolio according to the market situation. The Flexi Cap Funds can be a good choice for those who want to make long-term investments in equities. However, some factors should be taken into consideration.
Frequently Asked Questions
Flexi cap funds are equity mutual funds that do not follow a specific ratio in the allocation of investment in Large cap, mid cap and small cap companies.
The main objective of a flexi cap fund is to create wealth for the investors by investing in large, medium and small companies in the long run.
A beginner can consider investing in flexi cap funds if he understands the risks involved in the equity market, has the risk-bearing capacity and has a long-term view.
The minimum fund amount depends on the mutual fund scheme. Some flexi cap funds allow SIPs starting with as low as ₹100 or ₹500, while others may have a higher minimum investment amount.
Yes, a flexi cap fund can invest entirely in large cap stocks if the fund’s prospectus allows it.
Both the funds have different objectives. Large cap funds invest only in large-cap stocks whereas flexi cap funds can invest in large, mid and small-cap stocks. Thus, investors with different risk appetites and investment horizons choose both the funds.
Investors should consider a five-year or more time horizon for such funds to mitigate risks associated with short-term market fluctuations as positive returns are not guaranteed.
Yes, investors can start a SIP to invest in flexi cap funds, depending on the fund’s minimum investment requirements and the frequency of instalments they choose.
No, these funds do not guarantee returns as their performance depends on the market conditions and their risk exposure.
Since flexi cap funds are open-ended, investors can withdraw their money on any business day; however, exit loads and taxes may apply.
