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Flexi Cap Fund 2022 – Benefits & Factors to Consider before Investing

Looking to understand how flexi cap funds work? Here is a comprehensive guide to flexi cap fund, its benefits and how to invest in them.
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Investors need to diversify their equity portfolios across large, mid, and small-cap companies. But, many investors are not sure how much exposure they should take in each category and how to rebalance it from time to time. So, they can leave this task to the fund manager of a flexi-cap fund. This article will discuss flexi-cap funds, their benefits & factors to consider before investing.

What are Flexi cap funds?

A flexi cap fund is an open-ended dynamic equity scheme that invests a minimum of 65% of its total assets in equity and equity-related instruments of large, mid, and small-cap stocks. The fund manager can decide the proportion of investment in large, mid, and small-cap stocks without any minimum limits. The fund manager can change allocation from one category to another depending on market opportunity.

How does a Flexi cap fund work?

You can invest in a flexi cap fund at the time of New Fund Offering (NFO) or any time after. The investment mode can be a lump sum or systematic investment plan (SIP). You will be allotted the scheme units in proportion to your investment. The fund manager has the discretion to decide the percentage of scheme money to be allocated among large, mid, and small-cap stocks. The scheme's net asset value (NAV) moves based on the valuation of the shares in the scheme portfolio. An investor's profit/loss will depend on the movement of the NAV from the price at which they bought the scheme units.

Key benefits of a flexi-cap fund

Some of the benefits of a flexi-cap fund include:

Exposure to stocks across market capitalisation:

  • The biggest benefit of a flexi-cap fund is that it can give you exposure to stocks across market capitalisation (large, mid, and small-cap stocks) in a single mutual fund scheme. There are no restrictions on the fund manager for minimum investment exposure to any particular category across market capitalisation.

Tax implication for rebalancing within the portfolio:

  • Depending on market opportunities, the fund manager can decide to rebalance the scheme portfolio in favour of, say, mid-cap stocks from large caps. As the portfolio rebalancing happens within the mutual fund scheme, there will be no tax implications for the investor. There will be tax implications if an investor does this rebalancing in their personal equity portfolio.

How is a flexi-cap fund different from a multi-cap fund?

There are two key differences between a flexi-cap fund and a multi-cap fund.

FeatureFlexi-cap fundMulti-cap fund
Minimum equity allocationAs per SEBI guidelines, a flexi-cap fund has to invest a minimum of 65% of its total assets in equity and equity-related instruments.As per SEBI guidelines, a multi-cap fund has to invest a minimum of 75% of its total assets in equity and equity-related instruments.
Allocation across market capitalisationThe fund manager can decide the allocation to large, mid, and small-cap stocks without any minimum limits.The scheme has to maintain a minimum investment of 25% of its total assets in each: large, mid, and small-cap stocks at all times.

Factors to consider before investing in a flexi-cap fund

As an investor, you need to consider the following things before investing in a flexi-cap fund:

Risk Profile : Are you comfortable with a minimum of 65% equity exposure at all times?

  • As discussed earlier, a flexi-cap fund has to invest a minimum of 65% of its total assets in equity and equity-related instruments at all times. So, before you invest in a flexi-cap fund, you need to ask yourself whether you are comfortable with a minimum of 65% equity exposure at all times?

Dynamic Asset allocation : Are you comfortable with the fund manager deciding equity allocation across market capitalisation?

  • The fund manager can decide the allocation among large, mid, and small-cap stocks without any minimum limits. The fund manager can rotate the allocation among these at any time as per market opportunity. So, before you invest in a flexi-cap fund, you need to ask yourself whether you are comfortable with the fund manager deciding the equity allocation across market capitalisation. If you are looking for a minimum exposure (25%) to each of the large, mid, and small-cap stocks at all times, then you should consider investing in a multi-cap fund rather than a flexi-cap fund.

Performance of flexi-cap funds

Scheme name
(Direct plan - Growth option)
AUM (Rs. crores)1-year
(Absolute returns)
3-years
(CAGR)
5-years
(CAGR)
Quant Flexi Cap Fund3956.75%33.22%25.05%
PGIM India Flexi Cap Fund2,88844.68%32.61%24.25%
Parag Parikh Flexi Cap Fund18,29845.83%31.06%23.75%
UTI Flexi Cap Fund24,52134.40%27.43%22.50%
Canara Robeco Flexi Cap Fund6,16734.58%24.60%21.61%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/flexi-cap-fund.html)

Conclusion

If you want exposure to large, mid, and small-cap stocks across market capitalisation in a single mutual fund scheme, then you should choose between a flexi-cap or a multi-cap fund. Within the two, if you want the fund manager to manage the allocation to large, mid, and small-cap stocks without any minimum allocation to each category, then you should choose to invest in a flexi-cap fund.

To start investing in flexi-cap mutual fund schemes as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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