Everything You Need To Know About Flexi-Cap Funds4 min read
SEBI announced the creation of a new mutual fund category on November 9th, 2020. The new category was called the Flexi Cap Fund. SEBI’s announcement was one of the most anticipated moves. Investors were eager to learn about the new Flexi Cap fund after SEBI announced a few changes to the multi-cap category of mutual funds. The following article will give you an overview of everything you need to know about Flexi-cap funds.
What Is A Flexi-cap Fund?
Flexi-cap Funds are a type of equity mutual fund that can invest across market capitalization segments such as large-cap, mid-cap, and small-cap with no upper or lower limit. This multi-cap strategy gives fund managers more leeway in portfolio construction.
Based on market capitalisation, there are three types of stocks in the stock market: large-cap, mid-cap, and small-cap stocks. A mutual fund’s exposure to different types determines whether it is a large-cap, mid-cap, multi-cap, Flexi-cap, or small-cap fund. Each category has specific restrictions on the amount of market capitalisation that a fund can invest in.
A Flexi-cap fund is not restricted by market capitalisation limits. Depending on the market situation and valuations, it can invest across the market spectrum. The category was only recently created to distinguish it from multi-cap funds. The key point is that a Flexi-cap fund can adjust its exposure to large-caps, mid-caps, and small-caps based on domestic or global macroeconomic conditions and market valuations – and thus is best positioned to generate risk-adjusted returns.
What Differentiates Flexi-Cap Funds?
Flexi-cap Funds have gained popularity among investors in recent months because they allow investors to diversify their investment portfolio across market capitalizations. These funds are open-ended, dynamic equity funds that must invest at least 65% of their total assets in equity and equity-related securities. Investing in such funds allows investors to reduce their risks and volatility.
A multi-cap fund is the closest thing to a Flexi-cap fund. The latter invests equally in large-caps, mid-caps, and small-caps – 25% each. No matter what the market situation is, it must maintain equal exposure across the three, as opposed to Flexi-cap funds, which can invest across the types in whatever proportion the fund manager deems appropriate. As a result, when it comes to portfolio building, a Flexi-cap fund offers the broadest range of stocks. The only restriction imposed on the Flexi-cap category is that up to 65% of assets must be invested in Financial Planning equities. Some funds in this category also have the flexibility to invest in international equities.
Who Should Consider Exploring Flexi-Cap Funds?
The Indian economy experienced a persistent slowdown in the year 2020 due to the global pandemic. This has dampened the growth prospects of medium and small-sized businesses. Furthermore, many such companies have harmed corporate political issues and are concerned about their company’s stability. As a result, the Flexi cap fund may have significant exposure to large-cap funds. However, if the market shifts in favour of mid-cap and small-cap funds, the allocation of Flexi cap funds may increase. Small-cap stocks are more prone to higher volatility, which can increase portfolio risk. As a result, in order to reduce portfolio risk, investors should explore large caps, which help to balance out some of the volatility. Thus, Flexi cap funds are appropriate for investors with a moderate to high-risk tolerance and a minimum investment horizon of five years.
Why Should You Explore Flexi-Cap Funds?
The main reason for someone to explore this fund is because of the flexibility it provides. The fund manager has the flexibility to shape the portfolio in response to changing market valuations and macroeconomic conditions. If the fund manager believes that the broader markets are better positioned than large-caps, he or she can shift the portfolio allocation to mid and small-caps to capitalise on the upswing in these segments. Due to this reason, Flexi-Cap Funds have become a favourable option for investors to explore.
How Can You Explore Flexi-Cap Funds?
If you would like to explore Flexi-Cap Funds, you can do so with the Samco Flexi-Cap Fund NFO through the Paytm Money app. The Samco Flexi-Cap Fund is an open-ended dynamic equity scheme investing across large-cap, mid-cap & small-cap stocks. The fund will invest in 25 stress-tested efficient companies from India & across the globe at an efficient price, maintaining an efficient portfolio turnover & cost to generate wealth for investors over the long term.
If you want to know more about this fund then check out our YouTube channel!
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