Illustration: Binay Sinha

Flexicap mutual funds discuss with the schemes which have the pliability of investing in securities throughout their market capitalisation, that’s, smallcap, midcap and largecap shares. In accordance with the Securities and Alternate Board of India (Sebi), a flexi cap fund is an open-ended, dynamic fairness scheme investing throughout massive, mid and smallcap shares. Over the previous 2-3 years, many funds moved to the flexicap class, whereas just a few remained in multicap. 

How flexicap funds work

Flexicap funds function in another way from different mutual funds, corresponding to multicap funds, that are certain by Sebi laws to put money into particular market capitalisations. In contrast to these restrictions, flexicap funds have extra freedom.

Nonetheless, to qualify as a flexicap fund, at the very least 65 per cent of its belongings should be invested in Indian equities. Flexi cap funds are versatile investments that may regulate to totally different market situations, probably offering buyers with higher progress alternatives.

Options of flexicap funds

Diversified funding technique: One of many main appeals of flexicap funds lies of their diversified funding technique. Whereas some mutual funds focus solely on massive or mid-sized corporations, flexicap funds have the pliability to allocate investments based mostly on perceived worth, no matter firm measurement.

Dynamic asset allocation: Flexicap funds are actively managed, permitting fund managers to constantly consider market situations and regulate asset allocations accordingly. This adaptability permits them to shift investments to promising market segments, corresponding to midcap or largecap shares, as alternatives come up.

Threat and returns: Flexicap funds put money into quickly rising corporations throughout varied industries, probably providing engaging returns. Nonetheless, their versatility mitigates threat by avoiding overexposure to the volatility of smallcap shares or the sluggishness of largecaps. Lengthy-term funding is emphasised for probably superior risk-adjusted returns, minimising considerations about short-term market fluctuations.

Broad market publicity: Buyers in flexicap funds profit from publicity to numerous market segments. Whether or not in search of the steadiness of largecap shares or the expansion potential of smallcaps, buyers can probably capitalise on alternatives throughout totally different sectors.

Adaptability to market situations: The versatile nature of the fund equips them to navigate numerous market situations successfully. Throughout downturns in particular market segments, fund managers can pivot in the direction of extra promising areas, making certain resilience in altering market environments.

Liquidity and taxation: Like most mutual funds, flexicap funds additionally supply good liquidity. The tax implications for flexicap funds are like these of different fairness mutual funds.

As new buyers flock to mutual funds amidst hovering inventory market highs, monetary advisors are advocating flexi cap funds as a perfect entry level.

Buyers with a average to high-risk urge for food usually tend to put money into flexicap funds than different fairness funds, say analysts. “You possibly can put money into flexicap funds if you’re in search of secure returns and better risk-adjusted returns. The benefit of a flexicap fund is that it’s well-diversified, permitting market capitalisation to maneuver freely. So if you’re a risk-averse investor who desires to allocate funds in several market diversification ranges to earn secure returns, then flexicap funds investments are an incredible choice for you,” says a Upstox spokesperson.

Limitations of flexicap funds

Threat of losses from fund supervisor: Since these funds put money into all forms of corporations, the fund supervisor has to select from a big pool of corporations. So the efficiency of the fund relies upon upon the fund supervisor’s potential to decide on the suitable set of corporations based mostly on the prevailing market pattern to generate good returns.

Matching with proper threat choice: Aligning buyers’ threat preferences can pose challenges for this fund, because the fund supervisor’s allocation choices might not at all times match buyers’ expectations. Some flexicap funds might undertake an aggressive strategy, favouring mid and smallcap corporations, whereas others might prioritise safer investments in large-cap corporations. Choosing the suitable funds is essential, as selecting incorrectly might lead to both extreme threat. 

First Printed: Apr 16 2024 | 10:45 AM IST