Flexi Cap Funds

Flexi Cap Mutual Funds: Overview

Flexi Cap Mutual Funds offer investors the flexibility to invest across different market capitalizations, including large, mid, and small-cap companies. They also provide exposure to different sectors and industries, making them a great way to diversify an investor's portfolio. Flexi Cap Mutual Funds are managed by experienced fund managers who use their expertise to identify high-potential stocks and create a portfolio that can deliver superior returns in the long term.

Flexi Cap Mutual Funds: Key Features

1. Flexibility : As the name suggests, flexi cap mutual funds offer the flexibility to invest across market capitalizations based on market conditions. This means the fund manager can allocate more funds to large-cap stocks in a bullish market and shift to mid-cap or small-cap stocks in a bearish market.

2. Diversification : Flexi cap mutual funds invest in a diversified portfolio of stocks, which helps reduce the overall risk of the portfolio.

3. Potential for higher returns : Flexi cap mutual funds have the potential to offer higher returns than pure large-cap or mid-cap funds as they invest across market capitalizations.

Types of Flexi Cap Mutual Funds:

There are several flexi cap mutual funds offered by various fund houses in India. Some of the popular ones are: Axis Flexi Cap Fund, Aditya Birla Sun Life Flexi Cap Fund, SBI Flexi Cap Fund, Kotak Flexi Cap Fund, ICICI Prudential Flexi Cap Fund, and Parag Parikh Flexi Cap Fund, etc. among others. Investors can choose a fund that aligns with their investment goals, risk tolerance, and investment horizon.

Regular Flexi Cap Mutual Funds are those in which an investor invests through a distributor or an agent. The distributor receives a commission or a fee, leading to higher costs for investors.

On the other hand, Direct Flexi Cap Mutual Funds are those in which an investor invests directly with the fund house, without involving any distributor or agent. In this case, the investor saves on the commission or fee that would have been paid to the distributor or agent.

Who should opt to invest in best Flexi Cap funds in 2023?

Flexi cap mutual funds are suitable for investors who have a high-risk appetite and are willing to invest in a diversified portfolio of stocks. These funds are ideal for investors who are looking for higher returns than large-cap or mid-cap funds but do not want to take the high risk associated with pure mid-cap or small-cap funds.

Evaluating the Flexi Cap Mutual Funds:

Investors should evaluate Flexi Cap Mutual Funds based on various parameters, including fund performance, expense ratio, asset allocation, portfolio composition, and fund managers' experience. Investors should also consider the fund's investment strategy, risk level, and investment horizon before making an investment decision. Some key parameters:

1. Fund Performance : Check the historical performance of the fund over different market cycles.

2. Fund Manager : Evaluate the fund manager's track record and experience in managing the fund.

3. Expense Ratio : Compare the expense ratio of the fund with other similar funds to ensure that you are not paying high fees.

Taxation of Flexi Cap Mutual Funds:

Flexi Cap Mutual Funds are subject to capital gains tax based on the holding period.Flexi Cap Mutual Funds are taxed like any other equity-oriented mutual fund in India. The taxation of equity-oriented mutual funds is as follows:

1. Short-term capital gains tax: If an investor sells the mutual fund units within one year of purchase, the gains are considered short-term capital gains, and gains are taxed at 15%.

2. Long-term capital gains tax: If an investor sells the mutual fund units after one year of purchase, the gains are considered long-term capital gains and are taxed at a flat rate of 10%

Difference between Flexi Cap Mutual Funds and Multi Cap Mutual Funds?

Flexi Cap Mutual Funds and Multi Cap Mutual Funds are both equity mutual funds that invest in a mix of large-cap, mid-cap, and small-cap stocks. However, the key difference between the two lies in their investment mandate and portfolio construction.

While a Flexi Cap Mutual Fund has a flexible mandate to invest across market capitalizations, a Multi Cap Mutual Fund has to invest at least 25% of its assets each in large-cap, mid-cap, and small-cap stocks. As a result, Flexi Cap Mutual Funds may have a higher risk profile and offer higher returns, whereas Multi Cap Mutual Funds offer a more balanced risk-return profile. Ultimately, investors should choose the fund that aligns with their investment objectives, risk tolerance, and investment horizon.

Limitations of Flexi Cap Funds

Style drift: Flexicap funds and their managers may drift from their stated investment style to generate returns over and above the index. This can imapct the investment objective and style, hurting the long term performance of the mutual fund.

High volatility: Flexicap funds can be more volatile than other large cap funds since these funds can include stocks from small cap and mid cap category.

Lack of transparency: Flexicap funds usually disclose their portfolio holdings on a monthly basis while the fund managers transact in stocks on a regular basis. Ideally, if the holdings are declared more frequently, this would increase the transparency.