What is Flexi Cap Fund?, Advantages & risks of investing

Explore Flexi Cap Funds

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Fund name	Fund size	Expense Ratio	3Y Returns
JM Flexicap Fund Direct Growth Flexi Cap Very High Risk	₹5,012 Cr	0.52%	29.5%
HDFC Flexi Cap Fund Direct Growth Flexi Cap Very High Risk	₹66,304 Cr	0.77%	26.3%
Bank of India Flexi Cap Fund Direct Growth Flexi Cap Very High Risk	₹2,048 Cr	0.47%	26.0%
Motilal Oswal Flexicap Fund Direct Growth Flexi Cap Very High Risk	₹12,598 Cr	0.88%	25.6%
ICICI Prudential Flexicap Fund Direct Growth Flexi Cap Very High Risk	₹16,856 Cr	0.79%	22.3%
Edelweiss Flexi Cap Fund Direct Growth Flexi Cap Very High Risk	₹2,445 Cr	0.43%	22.2%
Quant Flexi Cap Fund Direct Growth Flexi Cap Very High Risk	₹7,331 Cr	0.59%	21.9%
Franklin India Flexi Cap Fund Direct Growth Flexi Cap Very High Risk	₹17,808 Cr	0.91%	21.5%
HSBC Flexi Cap Fund Direct Growth Flexi Cap Very High Risk	₹4,942 Cr	1.16%	20.7%
Mahindra Manulife Flexi Cap Fund Direct Growth Flexi Cap Very High Risk	₹1,457 Cr	0.42%	19.5%

All about Flexi Cap Funds

What are Flexi Cap Mutual Funds?

As per SEBI's classification, flexi cap mutual funds are equity funds that are required to invest at least 65% of their assets in equity and equity-related instruments. The unique feature of flexi-cap funds is that they can invest in equity across market capitalisations without any specific limitations, unlike large-cap, mid-cap, and small-cap funds

The flexibility to invest across market capitalisations gives the mutual fund managers the ability to seize investment opportunities without restrictions.

Advantages of Flexi Cap Funds

Diversification across market cap and sectors

The inherent benefit of asset allocation gives Flexi-cap funds a competitive edge. A proficient fund manager is capable of predicting market trends and strategically allocating assets to benefit from market upswings while being safeguarded from downturns.

No restrictions concerning the allocation of funds across different market caps and sectors work in the fund’s favour. Such diversification can help in the effective management of risk and reward.

Historical data shows that flexi-cap funds have provided returns of 30-34 times over the past 20 years. In 2023, 24 out of 32 schemes have outperformed their benchmark.

Potential for higher returns than large cap funds

With flexi-cap mutual funds, you can enjoy exposure to large-cap companies with a solid track record and a steady growth rate. These companies can help you cushion your portfolio from market fluctuations and provide stability.

On the other hand, you can also tap into the high growth potential of mid and small-cap companies that are still emerging and in their growth phase. Thus, these companies can offer you higher returns in the long run.

Index	1Y	2Y	3Y	4Y	5Y
NIFTY 500	9.05%	10.35%	76.11%	74.15%	89.90%
NIFTY 100	4.35%	5.62%	62.33%	58.69%	77.32%

Source: Yahoo Finance

Disadvantages of Flexi Cap Funds

Fund manager risk

The performance of flexi-cap funds heavily relies on the fund manager's ability to identify market trends and make sound decisions. Consequently, while the potential for increased returns is evident, there is also an amplified risk if these decisions are incorrect.

Misalignment with risk profiles for certain investors

Since the fund managers can invest across different market caps, the portfolio allocation and risk depend on their choices. Some flexi-cap funds may be aggressive and invest heavily across mid and small-cap companies. On the other hand, some may have a conservative approach.

Often, investors may be exposed to unwanted risk or invest in a very conservative portfolio. Thus, based on the investment objective, you must pick funds that align with your objectives and risk tolerance levels.

Flexi Cap Vs Multi Cap Funds

Aspect	Flexi Cap Fund	Multi Cap Fund
Definition	Invest across different market caps without any allocation restriction.	Must invest 25% in each large, mid and small cap.
Risks	Portfolio can be too aggressive with higher mid and small-cap exposure.	Market cap-based investment will restrict the fund manager from rebalancing the portfolio during a market crash.
Category Average Returns	3Y: 20.01% \| 5Y: 15%	3Y: 25.96% \| 5Y: 18.53%
Advantages	Diversification across the market cap and sectors Potential for higher returns than large-cap funds	Balanced equity portfolio at all times Diversification Good long-term investment
Disadvantages	Fund manager risk Misalignment with risk profiles for certain investors	Restricted asset allocation

Should you invest in flexi cap funds?

Flexi-cap mutual funds are a popular category, having the highest AUM (of Rs 2,83,765 Cr) across all equity mutual fund categories. Since these funds are not mandated by market cap-specific investment allocation, these funds have a diversified portfolio that suits different investor needs. Instead, the fund manager can pick stocks based on their research and market dynamics.

You can consider investing in flexi cap funds if you are looking for:

Long-term wealth creation

Flexi-cap mutual funds are suitable for those who want to invest for the long term. Investing across large-cap, mid-cap and small-cap without any predefined allocation works in favour of the fund. The high growth potential of mid-cap and small-cap stocks provides an opportunity to create wealth for investors.

Diversification

These funds focus on investing across different industry segments. The impact of market decline may be less on a well-diversified portfolio.

Furthermore, during market corrections, the fund manager can quickly rebalance the portfolio and reduce exposure to high-risk securities. Thus, investors who seek a well-diversified portfolio with active portfolio rebalancing can consider investing in flexi-cap mutual funds.

Rather than investing in a large, mid and small-cap fund, you can consider investing in flexi cap funds to diversify across sectors. However, if investing in more than one fund, you must consider the portfolio allocation of all the funds. Ensure you are not over-exposed to a sector or company.

When considering multiple flexi cap funds or combining them with other equity funds, it's crucial to be aware of portfolio overlap. Portfolio overlap occurs when different funds in your portfolio invest in the same stocks, potentially reducing the benefits of diversification. Always analyze the holdings of your chosen funds to ensure you're achieving true diversification and not inadvertently concentrating your investments.

Note: The above information is for educational purposes only. It is best to consult a financial advisor before making investment decisions.

Still got questions?
We're here to help.

What is the difference between a flexi-cap fund and a multi-cap fund?

Flexi-cap funds have no such investment restriction across the market cap. Flexi-cap funds must invest at least 65% of their assets in equities. On the other hand, multi-cap funds are mandated to invest at least 25% each across large-cap, mid-cap and small-cap companies.

How are flexi-cap mutual funds taxed?

Capital gains from flexi-cap funds are taxable. Short-term gains, where the investment holding period is less than 1 year, are taxable at 15%. On the other hand, long-term gains above Rs 1 lakh, where the investment holding period is more than 1 year, are taxable at 10%.

Which is better, flexi-cap or multi-cap funds?

Both flexi-cap and multi-cap funds have their benefits. Primarily, both offer a diversified investment portfolio that takes advantage of the growth potential of small and mid-cap companies. Flexi-cap funds offer more flexibility since SEBI doesn't mandate any market cap specific investment allocation. Thus, flexi caps can be a better investment option for aggressive investors.

Are flexi cap mutual funds safe?

Flexi-cap funds are high-risk equity mutual funds that invest across different market caps. Based on the asset allocation, the level of risk may differ. However, they are risky investments. Furthermore, the portfolio composition depends on the fund manager’s proficiency. Thus, flexi-cap funds cannot be considered safe investment options.

Can I redeem my investment in flexi cap mutual funds anytime?

Yes, you can redeem your flexi cap mutual fund investments anytime. While there is no lock-in period for flexi cap funds, redemptions may be subject to exit load.