What Are Flexi Cap Funds: Reasons to Invest In Flexi Cap Funds In 2022

Mutual funds

Flexi Cap Funds are mutual funds that invest in small-cap, mid-cap and large-cap stocks. Fund managers of such schemes vary the corpus allocation across these three categories to generate maximum returns for investors. In this article, we will be covering all details regarding flexi-cap mutual fund schemes, including their benefits, taxation, etc., for you to make the right investments.

What are Flexi Cap Funds?

As per SEBI guidelines, flexi cap funds will have to invest at least 65% of their assets in equity or equity-related instruments. Flexi cap mutual funds have a diversified portfolio as they allocate the investment corpus to equity shares of different companies across all market capitalisations. As a result, such funds can mitigate portfolio risk for investors seeking equity exposure. 

Unlike multi-cap mutual funds, flexi cap funds do not need to invest a fixed percentage in large, mid and small-cap stocks. In the case of such funds, a fund manager’s job is to estimate the potential growth of various firms irrespective of their size. After that, they are responsible to invest money in the right stocks to generate maximum returns for investors. 

Also Read: 10 Large Cap Mutual Funds That Can Be A Part Of Your Portfolio

How do Flexi Cap Funds Work in India? 

Unlike small-cap or mid-cap stocks, flexi cap funds have no limit on market capitalisation. At least 75% should be invested in equity and equity-related instruments. The investors create a diverse portfolio with low risk and volatility. Unlike multi-cap funds, there are no restrictions. 

Who Can Invest in Flexi Cap Funds?

The golden rule of investment is to invest based on your goals. Hence, it’s important to identify your financial goals before investing in flexi cap funds. In addition, you must assess your own risk-bearing capacity to find out if this type of mutual fund scheme is the right option for you. 

Also Read: How To Invest In Multi-Cap Mutual Funds

What are the Benefits of Investing in Flexi Cap Funds?

Following are some of the benefits of investing in flexi cap mutual funds:

• Freedom of the fund managers to invest in various sectors due to no limit on market capitalisation.
• Ability to balance out the risk and return due to a diversified portfolio.
• Higher capital protection due to a diversified portfolio.

Why Should One Invest in Flexi Cap Mutual Funds?

There are various reasons to invest in such funds, below are some of them:

Corpus allocation – In the case of flexi cap funds, fund managers have the freedom to make investments across large, mid and small-cap company stocks, to make maximum financial gains. Fund managers can provide stability by increasing the percentage of large-cap stocks in the portfolio. That said, they may choose to focus on generating higher returns by increasing the exposure to small-cap stocks. 

Mitigate risks – The flexibility in terms of asset allocation allows these funds to invest in large-cap, mid-cap, and small stocks. Accordingly, the portfolio risk gets reduced owing to diversification. Keeping the market scenario in mind, fund managers buy or sell stocks of various market caps and sectors to maximise investors’ wealth. 

Maximise opportunities across the market spectrum – A fund manager of the top flexi funds is constantly seeking opportunities in the market to achieve the scheme’s objective. They are trained professionals who analyse stocks and make investment decisions based on the market situation. 

Benefits of Asset Class – Equity investments have the capability to beat market inflation and generate incredible returns in the long run. Thus, flexi cap funds can help you achieve various long term financial goals. 

Also Read: Hybrid Mutual Funds: Types, Benefits, Risks & Returns

What are the Features Of Flexi Cap Funds?

There are various factors one needs to keep in mind before investing in Flexi Cap Funds. Some of them are listed below:

1. Flexi-Cap Funds are open to investments across companies of any market capitalization i.e.large-caps, mid-caps, and small-cap companies.
2. A Flexi-cap Fund has to invest a minimum of 65% of its assets in equity and equity-related instruments.
3. Unlike multi-cap funds, there is no minimum threshold for investments.
4. A Flexi-cap Fund provides its fund manager better flexibility to explore investment opportunities.

Taxation in Flexi Cap Funds

Taxation on equity funds like flex cap mutual funds is mentioned below.

Short Term Capital Gains 

These funds fall under equity-oriented schemes as they have to invest a minimum of 65% of their assets in equity. Now, returns realised within 12 months are known as short term capital gains (STCG). Such gains attract a tax rate of 15%. 

Long Term Capital Gains

If you make gains by selling your units after 12 months, the realised returns are taxed at 10%. Nevertheless, in case these returns do not exceed Rs. 1 lakh, they will not attract long term capital gains (LTCG) tax. 

Also Read: Taxation In Mutual Funds

When Should You Invest in Flexi Mutual Funds?

There is no specific time to invest in such funds as different investors have different investment objectives. Also, every investment decision should be based on your investment goals. Furthermore, since the performance of equity funds is impacted by market volatility, you must decide whether your risk profile is suitable for such investments. After considering these aspects, do your research about the current market conditions and compare the different flexi cap funds to choose the best option. 

Things to Consider Before Investing in Flexi Cap Funds 

Asset allocation – As you already know there is no fixed allocation in flexi cap funds. The manager’s ability to diversify the portfolio according to the fluctuation ensures maximum return. But there should be a 75% of investment in equity.

Besides identifying your financial goals and assessing your own risk profile, it’s essential that you take the following things into account before investing in the best flexi cap funds:

Expense ratio – This refers to a charge that asset management companies impose on investors on an annual basis. Fund houses levy this fee to cover the cost of managing the mutual fund scheme. Make sure to compare the expense ratio of the top flexi cap funds before making a decision. 

Experience of the fund manager – Fund managers of flexi cap funds take all buy-and-sell decisions after doing research and analysis. Accordingly, the performance of a scheme depends on the competence of the fund manager. Thus, it is vital for you to check the track record of the fund manager when investing in a fund. 

Past returns – By looking at the past returns of a flexi cap fund, you can find out if the mutual fund scheme’s scheme has been consistent. Also, you can know how the fund has performed in different phases of a market cycle. That said, note that the past performance of a fund does not give any indications regarding future returns. 

Also Read: What is Expense Ratio in Mutual Funds & How It Is Calculated?

Final Word

Investors often get confused between flexi cap and hybrid funds. Well, the primary difference between flexi cap and hybrid funds lies in the investment portfolio. Flexi cap funds invest in diverse market capitalisations whereas hybrid funds invest in debt and equity instruments. So, the bottom line is to go for flexi cap funds if you are thinking of long-term gains.

In case you’re planning to invest in low-cost index funds, you could so with Navi Mutual Fund. With Navi’s mutual fund schemes, you also have the opportunity to invest in foreign markets through fund of funds. 

Happy investing!

FAQs on Flexi Cap Funds

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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.