What Is A Flexi-Cap Fund?
Flexi-cap funds are mutual funds that invest across all market capitalizations in equities and equity-related assets. They are dynamic equity funds that manage the portfolio’s risk and return by changing between various capital market sizes. Consequently, they offer investors both value and growth due to their increased investment diversity.
Large-cap, mid-cap, and small-cap funds concentrate on large-, mid-, and small-cap stocks, respectively. Flexi-cap funds, on the other hand, are not limited to investing in equities with any particular capitalization. The fund managers allocate the fund’s assets to various capitalizations to reduce the volatility of a single capital market, thus mitigating risk. This also diversifies the portfolio, as fund managers invest in stocks based on their growth prospects rather than their size.
Investing in all market divisions strikes a balance between risks and profits, allowing for stable earnings even during bear markets. As the market size is not a limitation, fund managers are free to transfer from one section to another in response to market fluctuations. It gives the advantages of not only investing in equities that appear promising but also withdrawing them promptly if they fail to perform. Flexi-cap funds are funds that are adaptable and can switch from one capitalization to another.
How does a Flexi-Cap Fund work?
Contrary to small-cap and mid-cap equities, Flexi cap funds have no market capitalization limit. At least 75% of the portfolio should be invested in stocks and stock-related products. The investors construct a diversified, low-risk, and volatile portfolio. Unlike multi-cap funds, no restrictions apply.
Features of Flexi Cap Funds
These are the key characteristics of a Flexi-cap fund:
- Flexi-cap funds are equity funds that invest above 65 per cent of their assets in stocks and related instruments.
- They invest in various forms of capitalization rather than focusing on a specific segment.
- They are also able to switch from one part to the other if one capital market is underperforming. This provides investment options and diversification options.
- 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. Similarly, when a few stocks underperform, they are able to easily sell their holdings.
- They are therefore in a better position to provide a risk-return adjustment than multi-cap funds, which are constrained as to the proportion of their assets that must be invested in each capitalization group.
Taxation of Flexi Cap Funds
Flexi-cap funds are taxed as equity-oriented schemes under the Income-tax Act of 1961, as are all other equity funds. Profits earned through a Flexi-cap fund within one year are taxed at a flat rate of 15% (STCG – short-term capital gain tax), regardless of the applicable slab rate. If it has been more than a year, profits will be taxed at a flat rate of 10%, after an initial exemption of Rs. 1 lakh for all long-term capital gains.
Who Should Invest in Flexi Cap Funds?
The Flexi cap mutual fund is an excellent option for individuals with moderate to substantial risk tolerance. However, the investors must have a minimum investment horizon of five years. This sort of portfolio may contain more volatile small caps, which enhances the portfolio’s risk. However, by balancing out these risks, large organizations can mitigate some of this volatility and create stability.
Flexi-cap mutual funds are an excellent choice for investors with a moderate to high-risk tolerance and a desire to diversify their holdings across sectors and market capitalizations. These investors should also have a minimum five-seven year investment horizon.
Small-cap companies may be riskier investments since they are more volatile than large-cap funds. Nonetheless, Flexi cap funds also invest in huge companies, which will assist to mitigate some of the volatility and offer investors the necessary stability. If an investor wishes to achieve long-term goals, such as the education/marriage of their children and retirement, these funds may be a good option. If you are an aggressive investor seeking long-term gains from firms with varying market capitalizations, this fund may be for you.
Check out a detailed analysis of the UTI Flexi Cap Fund.
Conclusion
Flexi-cap funds are dynamic equity funds that, like multi-cap funds, invest primarily in equities across all market capitalization sectors. 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 larg, mid, and small capitalizations. They are diversified and capitalize on the rise of small- and mid-cap stocks as well as the stability of large-cap stocks. Fund managers can swap between equities and market groups based on their market forecasts.
