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A Detailed Overview of Flexi Cap 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.
This article gives you a 360 view of all about flexi-cap funds including how they work, their features and benefits, taxation and the risks involved. Read on!
What are Flexi Cap Funds?
As per SEBI (Securities and Exchange Board of India) guidelines, Flexi cap funds 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.
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How Do Flexi Cap Funds Work?
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.
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:
- Flexi cap Funds are open to investments across companies of any market capitalization i.e.large-caps, mid-caps, and small-cap companies
- A Flexi cap Fund has to invest a minimum of 65% of its assets in equity and equity-related instruments
- Unlike multi-cap funds, there is no minimum threshold for investments
- A Flexi cap Fund provides its fund manager better flexibility to explore investment opportunities
Benefits of Investing in Flexi Cap Funds
Following are some of the benefits of investing in Flexi cap mutual funds:
- With Flexi cap funds, fund managers have the freedom to invest in large, mid and small-cap company stocks across various sectors with different market capitalisations.
- Flexibility in terms of asset allocation increases the ability to balance out the risk and return. Fund managers keep an eye on market scenarios and buy and sell stocks of various market caps to maximise the gains.
- The diversified portfolio of Flexi cap funds helps in higher capital protection.
- As they are an equity fund, Flexi cap funds have the capacity to beat market inflation and generate great returns in the long run. Therefore, these funds can help in achieving your long-term financial goals.
Taxation of Flexi Cap Funds
Taxation on equity funds like flex cap mutual funds is mentioned below.
1. 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%.
2. 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.
Who Should Invest in Flexi Cap Funds?
Flexi cap mutual funds are a great option for investors who have moderate to high-risk appetite and are looking to diversify their investments across various sectors and market caps. These investors must also have an investment horizon of at least five years.
Investments made in small-cap companies might be riskier as they are more volatile than the large-cap funds. However, Flexi cap funds also invest in large companies that will help to balance some of the volatility and provide investors the stability they require.
These funds can be a great choice if an investor wants to fulfil their long-term goals like children’s education/marriage and retirement. If you are an aggressive investor wanting to gain from companies across different market caps over a long tenure, this might be the fund for you.
Risks Involved in Flexi Cap Funds
Investors who wish to invest in Flexi cap funds should be extremely careful. They must assess their tolerance and risk appetite before investing. Like any other mutual fund scheme, Flexi cap schemes also face market risks like volatility, geopolitical tension and economic downturn.
As these funds invest across market capitalisations, it makes them riskier than large-cap funds but comparatively less risky than small and mid-cap funds. The fund managers also have the option to change the portfolio allocations anytime as per their assessments. Therefore, make sure to check whether your financial goals are aligned with the fund manager’s objectives when it comes to handling risk and returns.
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Final Word
Investors often get confused between hybrid and Flexi cap 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 a fund of funds. Download the Navi App and get started now!
Happy investing!
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
FAQs
Ans: No, flexi cap funds do not have a lock-in period.
Ans: It is a fee charged by fund houses if investors decide to exit a scheme partially or entirely before the completion of a predetermined time period. This is to discourage them from redeeming their investments prematurely.
Ans: Market capitalisation is defined as the market value of the total outstanding shares of a listed company
Ans: SEBI introduced flexi cap funds as a new category of equity funds in November 2020.
Ans: It is hard to tell which fund is better as the financial goals of all individuals are not identical. Hence, you must identify your investment objectives, decide on the investment time horizon and assess your risk appetite before making a decision.
Ans: Flexi cap funds are considered to be the best for long-term investment goals. The ideal investment period for optimum returns should be five to seven years; however, three years’ investment can get you good returns as well.
Ans: Flexi cap funds invest across all types of sectors due to no limit on market capitalisation.
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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.
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