Flexi cap mutual funds are a new category of equity mutual funds with flexible asset allocation across the market capitalization. These mutual funds give investors the freedom to invest in small, mid, and large-cap stocks without any restrictions.
How is it different from Multi-cap funds? Multi-cap funds have to compulsorily invest at least 25% of assets each in small, mid, and large-cap stocks. Flexi-cap funds have no such restrictions. Fund managers can dynamically allocate assets to growth-positive companies to maximize returns.
Sounds interesting? Let’s find out more about Flexi Cap mutual funds.
SEBI launched the Flexi-cap scheme in 2020 to offer investment flexibility and dynamic asset allocation.
Fund managers have to invest at least 65% of total assets into equities across market capitalization. They can decide the allocation based on their analysis and expertise to lower the risk and boost profits.
Fund managers can invest the principal amount across a wide spectrum of markets. There is no limitation or rules on asset allocation. Flexi-cap funds are required to invest at least 65% into equities. But they have the freedom to distribute that 65% (or more) into any market cap.
Flexi-cap schemes are a blend of small, mid, and large-cap companies. They can create a diverse portfolio by allocating assets to different sizes and types of companies.
Flexi-cap funds deliver favorable returns with balanced risk. While you can explore small-cap funds for higher returns, large-cap funds can safeguard your investment. Mid-caps are moderately risky with decent returns. They collectively create a perfect balance between risk and returns.
Fund Managers can anytime shift assets between small, mid, or large-cap based on market volatility. They can tilt the funds completely towards a specific market capitalization segment or keep it diverse.
Flexi-cap funds have the potential to defeat inflation in the long run. As you have a dynamic mixture of various market capitalizations, inflation won’t affect your returns as much.
You must check if their investment goals align with Flexi-cap funds. Even though these funds have various benefits, that doesn’t mean you should invest blindly. Examine the fund’s features, fund manager’s performance, risk, and returns before investing in any mutual funds.
Flexi-cap funds balance the risk with diverse investments but are not risk-free. You may encounter high risk if the fund has allocated the majority of your assets to small-cap companies. Usually, fund houses have an in-house model to periodically balance Flexi-cap funds to minimize risk and maximize returns. Make sure your risk profile has a scope to welcome Flexi-cap funds.
It is very crucial to know the in-house policies and strategies of fund houses in the case of Flexi-cap funds. The returns you will earn depend on how well fund managers distribute your assets.
Fund houses charge a small amount of fee to handle your funds in the form of an expense ratio. Compare the expense ratio of various Flexi-cap funds with respect to returns before investing in them. Exit load is a fee charged at the time of fund redemption. If you hold the investment for a certain period of time, you might not need to pay an exit load. Check the exit load policy of fund houses beforehand.
Taxation of Flexi-Cap funds is the same as any other equity mutual fund. You will have to pay a 20% tax on Short Term Capital Gains (Investments redeemed before 12 months).
Long Term Capital Gains (Investment redeemed after 12 months) above INR. 1.25 lakhs are taxed at 12.5%.
Flexi-cap funds are suitable for investors who can take moderate to high risks. It diversifies your portfolio and balances the risk. You can invest in Flexi-cap funds if you can keep an investment horizon of at least 5 years.
SEBI launched Flexi-cap as an alternative to multi-cap funds. The aim was to offer flexibility to try different investment scenarios without any restrictions.
With Flexi-cap funds, fund managers can explore market capitalization and periodically update asset allocation. There is a decent chance of earning superior risk-adjusted returns if you can take some risk.
You can always take an expert’s opinion before investing in Flexi-cap funds. VNN Wealth experts can help you shortlist funds and create a strong portfolio, so you won’t have to worry.
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