Flexi-cap funds are mutual funds that invest in equity and equity-related instruments across all market capitalizations. They are dynamic equity funds that balance the risk and returns of the portfolio by shifting among different sizes of capital markets. Therefore, they offer both value and growth to the investors with their greater investment diversification.
Understanding the Flexi-cap Funds
Funds like large-cap, mid-cap, or small-cap focus on a particular capitalization like large-sized, medium, or small-capitalization stocks. On the other hand, Flexi-cap funds are not restricted to investing in stocks with any predetermined capitalization. The fund managers allocate the fund’s assets to different capitalizations that help them to mitigate the risks by lowering the volatility of a single capital market. This also diversifies the portfolio where the fund managers invest in stocks assessing its growth potential and not the size of the company.
Investing across all market segments strikes a balance between risks and returns that can give steady earnings even in the bear market. As market capitalization is not a constraint, the fund managers may switch from one segment to another based on the market movements. It offers double benefits of not only investing in those stocks that look promising but also timely withdrawal if they fail to perform. As they are flexible and can switch from one capitalization to another, they are called Flexi-cap funds.
Features of Flexi-cap Funds
These are the salient features of a Flexi-cap fund:
- Flexi-cap funds are equity funds that invest more than 65% of the assets in equities and related instruments
- They invest in all types of capitalizations without restricting themselves to a single segment
- They can also switch from one segment to the other if one capital market is not performing up to the mark. This offers investment choices and diversification possibilities
- Due to its flexibility, it provides both stability and growth to the portfolio where they can alter between capital market segments as well as stocks. They invest in companies with good business models, balance sheets, and track records. Similarly, they can make an easy exit whenever a few stocks are underperforming
- They do not have any constraint on what percentage of assets they must-have in any capitalization segment, unlike the multi-cap funds, and hence, are in a more advantageous position to give a risk-return adjustment
How are Flexi-cap Funds Different from Multi-cap Funds?
Both Flexi-cap and multi-cap funds invest in the capitalization of all sizes, that is, they allocate assets to stocks of large, medium, and small-sized companies. But, multi-cap funds have a mandate to maintain 25% of the assets in segments of all types of capitalization. Even if the fund managers can alter the asset allocation between market segments as per the market trends, they have to follow this mandate. Hence, they can switch only by a margin. However, Flexi-cap funds have no such constraint and are highly flexible. They are a considerable newly launched fund and were launched to differentiate itself from multi-cap fund’s investment portfolio. Flexi-cap funds have greater freedom to choose stocks irrespective of the size of the company or the market segment, as well as, to switch from one to another. Thus, we can say that Flexi-cap funds have a multi-cap investment strategy but with more flexibility and lesser restrictions.
Wrapping it up:
Flexi-cap funds are dynamic equity funds that invest largely in equities across all market capital segments, like multi-cap funds. However, they differ from multi-cap funds as Flexi-cap funds have no restraint on the size of funds they allocate to any segment whereas multi-cap funds must have 25% of funds in each of the large, mid, and small capitalizations. They are diverse and tap the growth of the small and medium-sized stocks along with the stability of the large-cap. The fund managers can switch among stocks and segments as they predict the market conditions.