The market regulator Securities and Exchange Board of India (SEBI) has been accommodating to the needs of existing investors. Flexi Cap Funds, a new type of multi-cap funds, was introduced on November 6, 2020. The notification stipulates that a minimum of 65% of total assets must be invested in equities and equity-related products.
The declaration was driven by the Mutual Fund Advisory Committee’s recommendations (MFAC). Prior to this, the market regulator implemented the rationalisation of multi-cap funds.
Prior to September 2020, multi-cap funds were unrestricted in their ability to invest in companies with diverse market capitalizations. This means that the fund managers of multi-cap plans should invest 65 percent of their net assets in equities and equity-related instruments. These investments may be made in companies with any market capitalization. SEBI released a circular in September 2020 mandating that multi-cap funds invest at least 75% of their total assets in equity and equity-related securities, with a minimum exposure of 25% to equity and equity-related securities of each large-cap, mid-cap, and small-cap company. This was implemented because the majority of multi-cap funds have shifted their attention to large-cap stocks. It also caused investors to be concerned. As they sought to maximise profits via a portfolio including a diverse assortment of stocks across market capitalization, they created a diversified portfolio of stocks.
Post-implementation, fund managers were restricted to a maximum of 25% portfolio exposure to a single market capitalization regardless of economic conditions.
Consequently, on the advice of MFAC, SEBI decided to introduce a new category. It enables fund managers to construct a portfolio that is in sync with the market and may provide favourable returns. The Securities and Exchange Board of India (SEBI) introduced a Flexi-cap category for mutual funds. This also brings back the fund managers into play. This is because the scheme’s success will depend on the fund manager’s expertise in stock selection and investment timing.
What are Flexi Cap Funds?
In accordance with SEBI regulations, Flexi Cap Funds must invest at least 65 percent of their assets in equities or equity-related products. Flexi cap mutual funds have a diverse portfolio since their investment capital is allocated to equity shares of companies with varying market capitalizations. Consequently, these funds help decrease portfolio risk for investors wanting exposure to equities.
Unlike multi-cap mutual funds, Flexi-Cap Funds are not required to invest a specific proportion of their assets in large, mid, and small-cap equities. In the case of such funds, it is the responsibility of the fund management to estimate the future growth of diverse companies, regardless of their size. Then, they are accountable for investing money in the most profitable stocks to maximize returns for investors.
In addition, SEBI has permitted fund companies to convert an existing scheme into a Flexi-Cap scheme. This is given, and all fund houses comply with the necessity for modifications to the scheme’s core characteristics.
List Of Top Flexi Cap Mutual Fund To Invest In India (as per 5-Year Return)
| Scheme | 5-Year Return | AUM (Cr) |
| Quant Flexi Cap Fund | 18.92% | 626.78 |
| Parag Parikh Flexi Cap Fund | 17.19% | 25,930.88 |
| PGIM India Flexi Cap Fund | 16.32% | 4,974.30 |
| UTI Flexi Cap Fund | 14.83% | 25,426.26 |
| Canara Robeco Flexi Cap Fund | 14.48% | 8,110.71 |
| IDBI Flexi Cap Fund | 13.59% | 369 |
| Edelweiss Flexi Cap Fund | 13.55% | 1,001.89 |
| HDFC Flexi Cap Fund | 13.52% | 29,372.11 |
| Union Flexi Cap Fund | 13.46% | 1,263.74 |
| DSP Flexi Cap Fund | 13.00% | 7,710.40 |
Source: AMFI (data as on 29/09/2022)
Features of Flexi-Cap Funds in India
These are the key characteristics of a Flexi-cap fund:
- Flexi-cap funds are equity mutual funds that invest above 65 percent of their assets in stocks and associated products.
- Without limiting themselves to a specific segment, they invest in all forms of capitalizations.
- They are also able to switch from one part to the other if one capital market is underperforming. This provides investing alternatives and diversification opportunities.
- Due to its adaptability, it delivers both stability and growth to a portfolio in which capital market segments and equities may be shifted. They invest in businesses with solid business models, financial statements, and track records. Likewise, when a couple of their holdings underperform, they can easily sell them. As a result, they are in a better position to provide a risk-return adjustment than multi-cap funds, which have restrictions on the proportion of assets that must be invested in each market capitalization group.
Things To Consider Before Investing in Flexi-Cap Fund
- Asset allocation – As you well know, Flexi-Cap funds do not have a preset asset allocation. The ability of the manager to diversify the portfolio in response to market fluctuations attracts maximum return. However, there should be a 65% equity investment.
- Expense ratio – This refers to an annual fee imposed on investors by asset management companies. This fee is charged by fund houses to cover the expense of managing mutual fund schemes. Compare the expense ratios of the leading Flexi Cap Funds prior to making a selection.
- Experienced Fund Manager – Consequently, a scheme’s performance depends on the capability of its fund manager. When investing in a fund, it is essential to investigate the past performance of the fund manager.
- Past Performance – By examining the past returns of a Flexi Cap Fund, you can determine whether the plan of the mutual fund has been consistent. Additionally, you may view the performance of the fund during several market cycles. Note, however, that the previous performance of a fund is not indicative of its future returns.
Taxability on Equity Mutual Funds
The taxation of equity mutual funds, such as flex cap mutual funds, is discussed here.
- STCG – Short-Term Capital Gains
These funds are classified as equity-oriented since they must invest at least 65 percent of their assets in equities. Now, capital gains realized within a year are classified as short-term gains (STCG). Such gains are subject to a 15% tax rate.
- LTCG – Long-Term Capital Gains
If you sell your units after 12 months and realize a profit, the realized returns are taxed at 10%. If these returns do not exceed Rs. 1 lakh, they will not be subject to long-term capital gains (LTCG) tax.
Who Are These Best Suited For Flexi cap Fund ?
This mutual fund category is suitable for investors desiring complete freedom in allocating their holdings to a certain market capitalization. In other words, investors who desire a diverse portfolio of equities can confidently invest in Flexi cap funds. Finding quality mid-and small-cap companies now can be tricky and demanding. In the immediate future, fund managers will allocate a greater proportion of these funds to large-cap stocks, but as the market improves, they will increase their allocations to mid-and small-cap stocks. Consequently, while Flexi cap funds with a large-cap allocation might mitigate volatility to some extent, investors with a moderate to high-risk tolerance and a 5-year investment horizon should consider investing in this mutual fund schemes.
Closer Look On Best Flexi Cap Mutual Funds (as per 5-Year Return)
- Quant Flexi Cap Fund
This fund has existed for nine years and eight months, having been established on January 1, 2013. As of 29th September 2022, Quant Flexi Cap Fund Direct Growth has INR 626 Crores in assets under management (AUM) and is a minor fund within its category. The fund’s expense ratio of 0.58% is lower than the expense ratios of the majority of other similar funds.
The returns of the Quant Flexi Cap Fund Direct-Growth over the past year were 5.29 percent. Since its inception, it has generated average yearly returns of 18.91%. Every two years, the fund has quadrupled the money put in it.
- Parag Parikh Flexi Cap Fund
Ppfas Mutual Fund’s Parag Parikh Flexi Cap Fund Direct-Growth is a Multi Cap mutual fund. This fund has existed for nine years and four months, having been established on 13 May 2013. As of 29th September 2022, the Parag Parikh Flexi Cap Fund Direct Growth has INR 25,930 Crores in assets under management (AUM) and is a medium-sized fund within its category. The expense ratio of 0.77 percent is comparable to that of the majority of other Multi Cap funds.
The one-year returns for the Parag Parikh Flexi Cap Fund Direct-Growth were -5.03 percent. Since its inception, it has generated average yearly returns of 18.73%. Every three years, the fund has doubled the money invested in it.
- PGIM India Flexi Cap Fund
This fund has existed for seven years and seven million dollars since its inception on 11/02/2015. As of 29th September 2022, PGIM India Flexi Cap Fund Direct Growth has INR 4,974 Crores in assets under management (AUM) and is a medium-sized fund within its category. The fund’s expense ratio of 0.31% is lower than that of the majority of other Multi Cap funds.
The returns of the PGIM India Flexi Cap Fund Direct-Growth during the past year were -6.99%. Since its inception, it has generated average yearly returns of 14.29%. Every three years, the fund has doubled the money invested in it.
- UTI Flexi Cap Fund
UTI Mutual Funds UTI Flexi Cap Fund Direct Growth is a Multi Cap mutual fund. This fund has existed for nine years and eight months, having been established on January 1, 2013. As of 29 September 2022, UTI Flexi Cap Fund Direct-Growth has INR 25,426 Crores in assets under management (AUM) and is a medium-sized fund within its category. The fund has a higher expense ratio than the majority of other Multi Cap funds, at 0.93 percent.
The returns of the UTI Flexi Cap Fund Direct Growth during the past year were -10.10%. Since its inception, it has generated average annual returns of 15.01 percent. Every three years, the fund has doubled the money invested in it.
- Canara Robeco Flexi Cap Fund
Multi-Cap mutual fund from Canara Robeco Mutual Fund. This fund has existed for nine years and eight months, having been established on January 1, 2013. As of 29 September 2022, Canara Robeco Flexi Cap Vehicle Direct-Growth has an AUM of 8,110.71 Crores and is a medium-sized fund within its category. The fund’s expense ratio of 0.49% is lower than that of the majority of other Multi Cap funds.
The one-year returns for the Canara Robeco Flexi Cap Fund Direct Growth were -3.71 percent. Since its inception, it has generated average yearly returns of 14.14 percent. Every three years, the fund has doubled the money invested in it.
- IDBI Flexi Cap Fund
This fund has existed for eight years and six months, having been established on March 10, 2014. As of 29 September 2022, IDBI Flexi Cap Fund Direct-Growth has INR 369 Crores in assets under management (AUM) and is a minor fund within its category. The expense ratio of 1.17 percent is higher than that of the majority of other Multi Cap funds.
The returns on the IDBI Flexi Cap Fund Direct Growth during the past year were 1.14 percent. Since its inception, it has generated average yearly returns of 17.05 percent. Every three years, the fund has doubled the money invested in it.
- Edelweiss Flexi Cap Fund
Edelweiss Mutual Fund’s Edelweiss Flexi Cap Fund Direct-Growth is a Multi Cap mutual fund. This fund has existed for seven years and eight months, having been established on January 13, 2015. As of 29 September 2022, the Edelweiss Flexi Cap Fund Direct-Growth has INR 1,001.89 Crores in assets under management (AUM) and is a medium-sized fund within its category. The fund’s expense ratio of 0.52% is lower than that of the majority of other Multi Cap funds.
The returns of the Edelweiss Flexi Cap Fund Direct Growth for the past year were -0.55%. Since its inception, it has generated average yearly returns of 12.54 percent. Every three years, the fund has doubled the money invested in it.
- HDFC Flexi Cap Fund
Hdfc Mutual Fund’s HDFC Flexi Cap Direct Plan-Growth is a Multi Cap mutual fund. This fund has existed for nine years and eight months, having been established on January 1, 2013. As of 29 September 2022, HDFC Flexi Cap Direct Plan-Growth has INR 29,372 Crores in assets under management (AUM) and is a medium-sized fund within its category. The fund’s expense ratio of 1.05% is greater than that of the majority of other Multi Cap funds.
The returns on the HDFC Flexi Cap Direct Plan Growth during the past year were 7.50%. Since its inception, it has generated average yearly returns of 14.70%. Every three years, the fund has doubled the money invested in it.
- Union Flexi Cap Fund
Union Mutual Fund’s Union Flexi Cap Fund-Growth is a Multi Cap mutual fund. This fund has existed for 11 years and four months, having been established on May 20, 2011. As of 29 September 2022, Union Flexi Cap Fund-Growth has INR 1,263 crores in assets under management (AUM) and is a minor fund within its category. The fund has a higher expense ratio than the majority of other Multi Cap funds, at 2.27 per cent.
Union Flexi Cap Fund-Growth returns over the past year have been -3.89 per cent. Since its inception, it has generated average yearly returns of 10.94%. Every three years, the fund has doubled the money invested in it.
- DSP Flexi Cap Fund
DSP Mutual Fund’s DSP Flexi Cap Fund Direct Plan-Growth is a Multi Cap mutual fund. This fund has existed for nine years and eight months, having been established on January 1, 2013. As of 29 September 2022, DSP Flexi Cap Fund Direct Plan-Growth has INR 7, 710.40 Crores in assets under management (AUM) and is a medium-sized fund within its category. The expense ratio of 0.73 percent is comparable to that of the majority of other Multi Cap funds.
The one-year returns of DSP Flexi Cap Fund Direct Plan-Growth were -6.63 percent. Since its inception, it has generated average annual returns of 14.34%. Every three years, the fund has doubled the money invested in it.
The Bottom Line:
Flexi-cap funds are dynamic equity funds that invest substantially in equities across all market capital segments, like multi-cap funds. Flexi-cap funds differ from multi-cap funds in that there is no limit on the proportion of money allocated to any segment, whereas multi-cap funds must invest at least 25% of their assets in each of the big, mid, and small capitalizations. They are diversified and capitalize on the rise of small- and mid-cap firms as well as the stability of large-cap stocks. Fund managers can swap between equities and market groups based on their market forecasts.
FAQs
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What is the Investment Horizon for Flexi-Cap Fund?
Flexi cap funds are best suited for moderate investors who seek to balance risk and reward, and long-term investment can generate wealth.
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Which is better among Flexi-Cap Fund and Multi-Cap Fund?
Given that no two people have the same financial objectives, it is difficult to determine which fund is preferable. Therefore, before making a choice, you must decide on your investing time horizon, your investment objectives, and your risk tolerance.
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