So, with a view to make sure that the scheme stays true to its label, SEBI on eleventh September, 2020, prescribed that for a Multicap fund, a minimal of 25% every ought to be invested throughout Massive Cap, Mid Cap and Small Cap firms. These contemporary pointers created a hue and cry within the mutual fund trade because it nearly took away the liberty the fund supervisor had underneath this class to take a position funds the best way they wished.

Submit deliberation, SEBI introduced the creation of a brand new class of Flexicap Fund on sixth November, 2020. On this class of fairness mutual fund, the one requirement prescribed was that on an total foundation, a minimal of 65% of property will likely be invested into equities. Right here the fund supervisor is free to take a position throughout market capitalisation with none restrictions. This round additionally allowed fund homes to transform their current multicap fund schemes into flexicap funds.

Why Flexicap Fund?

For the reason that fairness market shows volatility not solely by way of its total efficiency but in addition by way of relative efficiency of assorted segments like giant cap fund, mid cap fund and small cap fund, it is rather vital for an investor to faucet into the potential alternatives any particular phase of the market has to supply as a way to maximise one’s long run returns at any given level of time. Since a standard man doesn’t have the flexibility to determine the potential of a selected phase, it’s ultimate to remain invested in a product which helps them obtain this.

A big cap fund has to take a position minimal of 80% of its capital in giant cap firms whereas midcap and small cap funds have to take a position a minimal of 65% of their capital in firms of their respective segments. With inbuilt restrictions of getting to take a position minimal share of their property in particular market segments, investing in phase particular classes places a cap on the dynamism and manoeuvrability of the fund. Compared, Flexicap funds are devoid of any such rigidity and supply the fund supervisor most freedom by way of market capitalisation allocation.

Consequently, based mostly on the evolving market situations, the fund supervisor can go obese or underweight on any specific market phase. Furthermore, with the requirement to take a position a minimal of 65% in home fairness, a portion of upto 35% of the portfolio might be invested in debt or maintained in money or money equivalents with a view to reap the profit from any correction within the total market. The edge of 65% investments in Indian fairness on total foundation additionally permits the fund supervisor a greater legroom to take publicity in worldwide market at an opportune time.

Aside from all these, flexicap funds can supply significant and want based mostly diversification to 1’s portfolio. ICICI Mutual Fund which doesn’t have any flexicap fund is becoming a member of the membership with a brand new fund supply which is open from twenty eighth June to twelfth July, 2021.

Taxation of Flexicap funds

Beneath the Revenue Tax Act, a flexicap fund is taken into account an fairness mutual fund making the beneficial properties created from funding on this class eligible for concessional charge of tax. Any revenue realised inside 12 months is handled as quick time period and is taxed at a flat charge of 15%. The earnings realised past 12 months on such a fund are handled as long run capital beneficial properties and are totally exempt as much as Rs.1 lakh yearly and taxed at a flat charge of 10% on steadiness with out indexation.

Balwant Jain is a tax and funding knowledgeable and might be reached on jainabalwant@gmail.com