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The market regulator Securities and Exchange Board of India (SEBI) has been responsive to the needs of existing investors. On 6th November 2020, it announced a new category of multi-cap funds – Flexi Cap Funds. As per the announcement, minimum investment in equity and equity-related instruments have to be 65% of total assets.

What is 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. Despite changes in the classification of stocks, the fund manager’s decision remains unchanged. They stick by their conviction bets made for long-term benefits from investing based on fundamentals rather than short-term gains.

Who Should Invest in Flexi Cap Funds?

The year 2020 saw the Indian economy go through a persistent period of slowdown. This has made growth prospects for middle-scale and small-cap companies very low-spirited. Many such companies have concerns with regards to their company’s stability. Flexi Cap Funds may hold major exposure to large caps. 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. 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.

Best Flexi Cap Mutual Funds to Invest

Fund NameISIN3 Year Returns(%)
PGIM India Flexi Cap FundINF663L01FJ325.8
Parag Parikh Flexi Cap FundINF879O0101925.2
UTI Flexi Cap FundINF789F0151321.7
DSP Flexi Cap FundINF740K0103720.9
Axis Flexi Cap FundINF846K01B5120.1
Union Flexi Cap FundINF582M0110419.7
SBI Flexicap FundINF200K0122216.4
Kotak Flexicap FundINF174K0133615.5
HDFC Flexi Cap FundINF179K0160813.7
Motilal Oswal Flexicap FundINF247L0147810.7

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 percent 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 caps of the manager who has a strong long-term track record of success.

Compare Flexi Cap Vs Multi-Cap Mutual Fund

ParticularsFlexi Cap FundMulti-Cap Fund
Exposure to Equity.Minimum 65%.Minimum 75%.
Market Cap Allocation.There is no mandate. You are free to invest across market caps.25% minimum to each category i.e. large-cap, mid-cap, and small-cap stocks.
Discretion of Fund manager.The fund manager is free to choose from across market capitalization and stocks.The fund manager is only free to choose the stocks from the given market cap.

Conclusion

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 financial advisor before making any investment decisions. The above details however might help you make informed decisions based on your investment preferences.