A Brief Note on Flexi-Cap Funds

There are 11 equity-oriented mutual fund categories, including multi-cap, large-cap, mid-cap, small-cap, value funds, sectoral, Equity-Linked Savings Scheme (ELSS), and flexi-cap funds. Of all these variants, the most popular category, depending on the size of assets, is flexi-cap mutual funds.

There are 38 flexi-cap mutual funds with total Assets Under Management (AUM) of Rs 3.27 lakh crore, which is higher than any of the remaining 10 equity fund categories.

For example, there are 42 ELSS equity schemes, while the total asset value of these schemes touches about Rs 2 lakh crore. At the same time, there are 149 sectoral/ thematic funds, but the total value of their assets is about Rs 2.58 lakh crore, as per the data of the Association of Mutual Funds in India (AMFI) on December 31, 2023.

Here’s the lowdown on what are the flexi-cap mutual funds category:

Flexi-cap mutual funds are defined as schemes that have the flexibility of investing in securities across their market capitalisation (m-cap), which could be small-, mid-, and large-cap stocks.

As per the markets regulator, the Securities and Exchange Board of India’s (SEBI’s) categorisation of mutual fund schemes, flexi-cap funds are mandated to invest a minimum of 65% of assets in equity and equity-related instruments.

As per the data, flexi cap-mutual funds, as a category, delivered a 30.26% return in the past one year, 12.48% in the past two years, and 18.13%t in the past three years

Benefits for investors for investing in flexi-cap funds include:

Flexibility: The asset allocation of flexi-cap funds is quite flexible and not confined to the norms that restrict categories such as large-, mid-, and multi-cap funds.

New category: It is a new category that was unveiled in November 2020 and is usually considered a refined version of multi-cap funds. It is devoid of the sole limitation multi-cap funds suffer from. For example, in the case of multi-cap funds, allocations are required to be made to the tune of 25% of assets in each of the three categories, which are small–, mid-, and large-cap.

However, flexi caps do not have any such limitations. They are fully flexible in terms of the proportion of allocation to each of the three categories.

Respectable returns: They have offered decent returns as a category. These funds have given better returns in the past year than those of broader indices, such as Nifty50, which witnessed an uptick of 20% in 2023.

Possibility of tweaking allocation: The fund manager can raise the fund’s allocation to small- and mid-caps when the stock market is experiencing a bull run and reverse the ratio in favour of large-caps when the market witnesses volatility. None of the other hybrid funds are known to offer the freedom to reverse the allocation.