The Indian market regulator SEBI has been responsive to the needs of existing investors. A new category of multicap funds named flexi cap funds was announced on 6 November 2020 by SEBI. As per the circular, the minimum investment in equity and equity-related instruments was to be 65% of total assets. Read on to know more.
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Defining Flexi Cap Fund
Flexi cap funds are a type of equity fund that invests in opportunities across the market capitalisation 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 the 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 one’s 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
- Before investing, consider investment objectives and the mix of top-down and bottom-up approaches to prepare the portfolio for opportunities across large cap and smaller cap stocks.
- A fixed strategy on mid-cap exposure may not be effective, so a good flexi cap fund dynamically allocates across large, mid, and small caps and rebalances periodically.
- Some fund houses rely on in-house models to make allocation decisions, with an optimal allocation of 0-50% to small and mid caps depending on market conditions.
- Flexi cap mutual funds offer a diverse portfolio balancing risk and return, delivering steady returns even during bear market phases, making them suitable for long term investors.
- If investing in flexi cap mutual funds, consider a longer investment horizon. Also, understand the key differences between large, mid, and small cap funds.
Difference Between Flexi Cap Funds Vs Multicap Funds
- The most important factors to consider in investing are one’s risk appetite and investment needs. One should also take into consideration the current asset allocation of one’s portfolio and align it with the target goal.
- Investing in multicap funds can help one get the best of both worlds. One will be able to invest in a variety of stocks. While large caps investments also provide some stability if one’s portfolio is on the more risky side.
- Flexi cap funds let one invest with confidence. One 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.
Comparing Flexi Cap Vs Multicap Mutual Fund
| Particulars | Flexi Cap Fund | Multicap Fund |
| Exposure to Equity | Minimum 65% | Minimum 75% |
| Market Cap Allocation | There is no mandate | One is free to invest across market caps |
| Discretion of Fund manager | The fund manager is free to choose from across market | The fund manager is only free to choose the stocks from the given market cap. |
Conclusion
Understanding flexi cap funds is crucial for investors seeking flexibility and diversification in their investment portfolios. These funds, introduced by SEBI to cater to varying risk appetites and market conditions, offer the freedom to invest across market capitalisations without specific mandates. Investors can benefit from steady growth over time with multicap funds, while flexi cap funds may provide better returns in volatile markets. Consulting with a financial advisor is recommended before investing, ensuring alignment with individual investment goals and risk tolerance. Ultimately, flexi cap funds offer a versatile investment option, allowing investors to navigate dynamic market conditions effectively.
