The concept of Flexi-cap funds was first introduced in India only in 2020 when SEBI announced a new category within the equity mutual fund schemes. This move came as a result of various equity schemes going outside of their investment category spheres to explore other avenues for better returns. To ensure maximum investor protection and allow a broadening of investment options, SEBI introduced Flexi-cap funds.
With flexi-cap funds, investors can easily diversify across companies of different market capitalisations and also reduce volatility and risk of their portfolio. Here, we will discuss the details of flexi cap funds and also highlight some of the top-rated fund recommendations to ease investor decision-making.
Read More: New Equity Mutual Fund classification by SEBI
What are Flexi cap funds?
Flexi cap funds are open-ended dynamic mutual fund schemes that primarily invest in:
- large-cap,
- mid-cap and
- small-cap stocks.
These schemes allocate a minimum of 65% of the portfolio in equity and equity-related instruments.
Under these schemes:
- Fund managers can invest in companies of varying sizes without following any market cap related pre-conditions or restrictions.
- Fund managers can gauge the relative attractiveness of certain sub-segments of the industry and take investment decisions based on their conviction about sector performance
- Fund managers may choose to invest in companies that are high growth and small-sized to offer value benefits to investors.
- They can invest in companies that have strong balance sheets, comparatively good return ratios, and stable cash flows
No matter the changes in stock categories, a flexi cap fund manager’s investment decision can stay unchanged during the course of investment. The scheme design allows fund managers to focus on company fundamentals for maximising investor benefits.
Reasons to invest in flexi cap funds
Here are some of the top benefits that provide reason enough for investors to consider investing in this scheme category:
- Fund managers can freely invest in companies with different market capitalisations
- It allows a well-diversified equity portfolio with a flexible strategy based on the ‘go-anywhere’ investment approach
- Fund managers can explore opportunities across different market spectrums, sectors, or business styles
- Allows balance between risk and return through a diversified portfolio
What are the differences between flexi-cap and multi-cap funds?
The table below shows the key differences between flexi-cap and multi-cap funds:
| Parameters | Flexi cap | Multi cap |
| Allocation | No restriction on minimum percent allocation. The allocation is at fund manager’s discretion. | Have to follow the 25-25-25 rule with 25% mandatory allocation each in large-cap, mid-cap, and small-cap stocks. |
| Flexibility | Dynamic investment selection. | Have to follow the mandated investment allocation. |
| Market cap | Can invest in either or all of the market caps. | Must invest in all three market cap categories. |
| Ideal for | Investors who have a high risk appetite and return expectations through dynamic portfolio. | Investors who have a medium to high risk appetite and prefer a minimum percent allocation in specific categories. |
Who can invest in Flexi cap funds?
The points below will help investors know if they can consider investing in Flexi cap funds:
- Investors who prefer flexibility of investing across companies of different market caps
- Investors who have a medium to high-risk appetite
- Investors who have an investment horizon of 5 years or above
- Investors who want a disciplined portfolio construction approach from a mutual fund
Best Flexi cap funds to invest in 2023
Based on historical performance, here are the top investment options within flexi-cap funds.
- UTI Flexi Cap Fund
- Parag Parikh Flexi Cap Fund
- Kotak Flexicap Fund
- Aditya Birla SL Flexi cap Fund
- DSP Flexi cap Fund
UTI Flexi Cap Fund
About Fund
The scheme aims to offer long-term capital appreciation to investors by primarily investing in equity and equity related securities of companies with different market capitalizations.
| Inception Date | January 01, 2013 |
| Benchmark Name | NIFTY 500 Total Return Index |
| Fund Manager | Ajay Tyagi |
| Expense ratio | 1.58% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 6-Month | 1-Year | 3-Year | 5-Year | 10-Year |
| 8.62% | -10.74% | 17.21% | 13.48% | 14.35% |
Parag Parikh Flexi Cap Fund
About Fund
The scheme aims to offer long-term capital appreciation to investors through investment focusing primarily on equity and equity-related instruments.
| Inception Date | May 28, 2013 |
| Benchmark Name | NIFTY 500 Total Return Index |
| Fund Manager | Raj MehtaRajeev Thakkar |
| Expense ratio | 1.66% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 6-Month | 1-Year | 3-Year | 5-Year | 10-Year |
| 5.96% | -5.96% | 22.81% | 16.04% | – |
Kotak Flexicap Fund
About Fund
The scheme aims to offer long-term capital appreciation to investors by establishing and maintaining a portfolio of equity and equity-related securities. It generally focuses on certain selected sectors.
| Inception Date | January 01, 2013 |
| Benchmark Name | NIFTY 500 Total Return Index |
| Fund Manager | Harsha Upadhyaya |
| Expense ratio | 1.58% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 6-Month | 1-Year | 3-Year | 5-Year | 10-Year |
| 15.41% | 6.89% | 15.15% | 11.31% | 15.69% |
Aditya Birla SL Flexi cap Fund
About Fund
This is a open-ended scheme belonging to a high risk category. The scheme’s objective is to achieve long term capital growththrough investment focus on equity and equity related instruments across different market capitalizations.
| Inception Date | January 02, 2013 |
| Benchmark Name | Nifty 500 TRI |
| Fund Manager | Mr. Anil Shah and Mr. Dhaval Joshi |
| Expense ratio | 1.79% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 6-Month | 1-Year | 3-Year | 5-Year | 10-Year |
| 13.12% | 1.62% | 16.10% | 10.46% | 15.62% |
DSP Flexi cap Fund
About Fund
This is an open ended scheme with Nifty 500 TRI as benchmark. The fund will invest across different equities belonging to varied market capitalizations and seek long term capital appreciation from the portfolio.
| Inception Date | January 02, 2013 |
| Benchmark Name | Nifty 500 TRI |
| Fund Manager | Mr. Atul Bhogle and Mr. Dhaval Gada |
| Expense ratio | 1.83% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 6-Month | 1-Year | 3-Year | 5-Year | 10-Year |
| 13.36% | -2.77% | 16.04% | 11.42% | 13.97% |
Taxation on returns from flexi cap funds
From a tax perspective, since flexi-cap funds invest a minimum of 65% of the corpus in equities, they form part of Equity-Oriented mutual fund schemes. Therefore, the following taxation is applicable to profits earned from investment in Flexi cap funds:
- Profits earned within 12 months are taxable at a flat rate of 15% across all slab rates.
- If invested for more than 12 months, it is categorised as long term and profits are taxable at a flat rate of 10%. An initial exemption of Rs. 1 lakh is applicable in this case.
Ways to invest in Flexi cap funds
Investors looking to invest in Flexi cap funds can use the Fisdom app and follow the below-mentioned easy steps to get started:
- Download and launch Fisdom app on your smartphone
- Go to Équity section on the home screen
- Select the option ‘flexi-cap’
- After selecting a fund fron the list of options, click on ‘invest’
- Choose either ‘SIP’ or ‘Lump-sum’ investment options as per personal preference
- Enter the amount to invest
- Provide your basic details as required
- Complete the payment process to begin the investment
Conclusion
Flexi cap funds are a good shift from the multi-cap mutual fund option, as investors can explore dynamic opportunities offered by all market capitalisations. This improves the chances of fetching higher returns, as fund managers can switch between the various market caps to maximise returns while looking for value opportunities.
FAQs
Since equity, among all the asset classes, has a higher potential to fetch inflation-beating returns, in the long run, Flexi-cap funds may offer such returns due to investment focus on equity.
Short-term capital gains tax is applicable to returns from Flexi-cap investment if the investment tenure is under one year. The tax rate is set at 15%.
A Flexi-cap fund investment may be suited to you if you expect reasonable returns from investment through long-term growth.
Investors who do not have a high risk appetite may consider investing in Multi-cap funds since these too offer exposure to different market caps but with a balanced investment proportion.
Flexi-cap funds can offer aggressive returns as compared to multi-cap funds since the former has a dynamic portfolio construct spreading investments across different market caps without any restriction.
