What Are Flexi-Cap funds, And What Are Its Features And Benefits?
When investing in equity funds – there are mainly three categories that you could think of investing in. These three categories are large-cap funds, mid-cap funds, and small-cap funds. This categorisation of investment is based on market capitalisation wherein these funds are invested in organisations that have an extensively large market capitalisation (large-cap), a moderate market capitalisation (mid-cap), and a low market capitalisation (small-cap).
The Securities and Exchange Board of India (SEBI) announced the introduction of Flexi-cap funds on 9th November 2020. Flexi-cap funds are just like multi-cap funds but with a twist, which the investors were thrilled about. Here is an overview of what Flexi-cap funds are all about, how these investments differ from Multi cap funds, and the benefits you can gain as an investor if you pour your money into these investments.
What Is Flexi-Cap Fund?
A Flexi-cap fund meaning is an investment that allows you to delve into investments in various fields of market capitalisation, which is specified in the fund's prospectus. Flexi-cap funds can offer more investment options and diversification opportunities to fund managers by allowing you to invest in high-quality companies, regardless of market capitalisation, whether large-cap, mid-cap, or small-cap.
These investments not only provide superior returns to investors but also diversify your investment portfolios across companies with different market capitalisations to reduce risk and volatility. Flexi-cap funds are well-balanced funds that can generate stable returns even in bear markets. The diverse portfolio mix that makes up Flexi-Cap ensures an optimal balance of the fund's risk and return aspects.
One of the factors that make Flexi-cap funds attractive is that in times of economic uncertainty, a Flexi-cap fund can provide the best returns of any mutual fund. This is one of the reasons that Flexi-cap funds are the most favoured by investors these days. Many investors prefer Flexi-Cap funds over other types of funds, such as ELSS, Mid-Cap, Small-Cap, Sector, and Thematic Funds.
Importance of Flexi-Cap Funds
Fund managers are free to change fund allocations, switching between bearish and bullish positions at any time. Though this change is subjective to market conditions. Investors time the market and take risks with their investments, while Flexi-cap funds automatically allocate their investments to the best opportunities available to grow their investments.
These funds keep investments from getting bogged down in dead or underperforming stocks. To invest in Flexi-cap funds, all you need is a KYC verification, and the rest is done by your fund managers, who wisely allocate your money in the right mix of funds.
Features of Flexi-Cap Funds
Now that you understand what Flexi-cap is and its importance let us look at its features. These are the key characteristics of a Flexi-cap fund:
- Flexi-cap finances are making investments greater than 65% of the property in equities and associated instruments
- They spend money on all varieties of capitalisation without limiting themselves
- They also can transfer from one market capitalisation to another in case the fund is not performing as expected. This gives funding selections and diversification possibilities
- Due to its flexibility, it can manage the portfolio in which it can adjust among capital marketplace segments and invest in corporations that are performing well and exiting underperforming options
Difference Between Flexi-Cap and Multi-Cap Funds
The Flexi-cap fund is quite similar to the multi-cap funds wherein the latter invests equally 25% each in large-cap, mid-cap, and small-cap stocks, regardless of market conditions. Flexi-cap funds, on the other hand, benefit you by investing in any type in any ratio the manager deems appropriate.
As a result, Flexi-cap funds offer the widest range of securities when building a portfolio, including international equity investments. The only limitation in the Flexi-Cap category is that a maximum of 65% of your assets must be invested in financial planning stocks.
Who Should Consider a Flexi-Cap Fund?
Flexi-cap funds are one of the safest ways to invest in different market capitalisation levels, especially large-cap funds, which are more stable and secure. These stocks were launched considering the sustained slowdown in 2020, which mitigated small business growth prospects. Flexi-cap investments can switch from mid- and small-cap funds to large-cap funds as small-cap stocks tend to be more volatile, which can increase portfolio risk.
Therefore, investors should look to large-cap stocks to de-risk a portfolio, which can help offset some of the volatility. The Flexi-Cap fund is, therefore, suitable for investors with a medium to a high level of risk tolerance and a minimum investment period of 5 years.
The main reason someone considers this fund is the flexibility it offers. Fund managers can construct portfolios in broader markets that are better positioned than large-cap stocks. It can shift its portfolio allocation towards mid-and small-cap stocks to take advantage of the upturn in these segments. This is one of the leading reasons Flexi-cap funds are a feasible option for investors.
So if you are a risk-aversive investor who wants to allocate funds in different market diversification levels to earn stable returns, then Flexi-Cap funds investments are a great option for you.
Benefits Of Investing In Flexi-Cap Investments
Flexi-cap investments are for long-term wealth growth, providing investors with a diversified portfolio. It protects against unexpected declines in certain assets or segments due to short- or medium-term volatility. It will allow you to reduce your exposure to riskier segments by minimising your holdings in the stock market to 65%.
Flexi-cap funds offer great flexibility in investing, which largely depends on the performance of specific market segments, such as investments in large-cap, mid-cap, and small-cap stocks.
- Flexi-cap investments allow you to invest in all three market caps.
- It provides you portfolio stability with stable exposure to large caps that are well established.
- These investments typically show steady earnings growth that can protect you against market volatility and the downsides that can be its consequence.
- Flexi-cap investments provide portfolio growth, allowing you to capitalise on small and medium-sized business development.
- These investments also come with a diversified portfolio spread across the entire market capitalisation, effectively managing risk and return.
Best Flexi-Cap Funds to Invest In
Some of the best Flexi-cap funds to invest in 2022
- Parag Parikh Flexi-Cap Fund
- UTI Flexi-Cap Fund
- PGIM India Flexi-Cap Fund
- Aditya Birla Sun Life Flexi-Cap Fund
- SBI Flexi-Cap Fund
- Canara Robeco Flexi-Cap Fund
Conclusion
Flexi-Cap funds, like multi-cap funds, are dynamic equity funds that invest broadly in equities across all market capital segments. However, Flexi-cap funds have no limit on the size of funds allocated to segments, whereas multi-cap funds must allocate 25% of the funds to each of large, medium, and small market cap.
Flexi-Cap funds are diverse and give the flexibility to fund managers to switch between stocks and segments when forecasting market conditions. By investing in Flexi-cap funds, you can take advantage of the growth of small- and medium-cap stocks along with the stability of large-cap stocks.
Frequently Asked Questions
How are Flexi-cap investment companies classified as large, mid, or small-cap?
According to SEBI, companies can be categorised into small, mid, and large-caps based on market capitalisation as follows:
- Listed companies with market capitalisation between 1 and 100 are classified as large-cap funds.
- Listed companies ranked 101st to 250th by market capitalisation are classified as mid-cap.
- Listed companies ranked 251st and below fall into the small-cap fund category.
Who should invest in a Flexi-cap fund?
Investors with a moderate to high-risk appetite are more likely to invest in Flexi-cap funds than other equity funds. You can invest in Flexi-cap funds if you are seeking stable returns and higher risk-adjusted returns.
What are the benefits of investing in Flexi-cap funds?
The advantage of a Flexi-cap fund is that it is well-diversified, allowing market capitalisation to move freely. Fund managers seek to balance risk and return by investing in various categories using their meticulous experience and expertise.
Which is better, a multi-cap fund or a Flexi-cap fund?
Both multi-cap and Flexi-cap funds offer unique advantages. Both give you the benefit of revenue generation and wealth growth in small- and mid-cap stocks, with large-cap stocks easing losses. However, Flexi-cap funds were created to be more flexible and offer additional benefits not found in multi-cap funds.
How are the best Flexi-cap mutual funds ranked and categorised?
The best Flexi-cap funds are ranked based on the following:
- The average rolling yield
- The consistency in performance over the last 3 years
- Outperformance
- The asset scale