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    What are Flexi-Cap Funds? Things You Should Know Before Investing

    Nov 11, 2022
    4 min | Views 2456

    Equity-oriented mutual funds like Flexi-cap funds can be a vital component of any portfolio built for long-term wealth creation. Read this post to learn more about Flexi-cap mutual funds.

    Content

    Equity as an asset class is one of the ways one can achieve long-term financial goals. But many retail investors lack the knowledge and experience to pick stocks with great prospects.

    The popular types of equity mutual funds include large-cap, mid-cap, and small-cap funds. And each of these funds carries different risks and return potential.

    However, this still leaves gaps for many investors who wish to invest across market capitalizations.

    Equity-oriented mutual funds like Flexi-cap funds can help to fill the gap by providing investors access to a diversified investment portfolio built and managed by professional fund managers.

    But what is a Flexi-cap fund? How does it work? Here’s everything you should know-

    What is Flexi-Cap Fund?

    SEBI introduced the “Flexi-cap fund " category in its circular dated November 06, 2020. As per SEBI's the type of scheme is, An open ended dynamic equity scheme investing across large cap, mid cap, small cap stocks. Minimum investment in equity & equity related instruments - 65% of total assets.

    Also Read About - What is the Minimum Investment in Mutual Funds?

    How Does a Flexi-Cap Fund Work?

    To better understand Flexi-cap fund meaning, it’d help if you know how these funds work. As these are dynamically-managed mutual funds, the fund managers consistently look for large-cap, mid-cap, and small-cap companies with strong fundamentals and growth potential.

    The portfolio is also regularly modified as per the market conditions.

    Features of Flexi-Cap Mutual Funds

    Here are some of the features that are making these funds popular.

    • Diversified Portfolio

      Flexi-cap funds invest money in stocks across market capitalizations to ensure healthy diversification. Investing in a single Flexi-cap fund exposes you to large-cap, mid-cap, and small-cap companies across industrial sectors.

    • Dynamic Portfolio Management

      Flexi-cap funds are dynamically managed. Fund managers adjust the asset allocation to benefit from potential opportunities.

    • No Capitalization Threshold

      As per SEBI guidelines, Flexi-cap funds don't have such capitalization limits, giving fund managers more freedom to build and adjust portfolios.

    • Open-Ended Scheme

      As Flexi-cap funds are open-ended equity schemes, they don’t have any fixed maturity or lock-in period. You can invest a lump-sum amount or start a Systematic Investment Plan (SIP) in any Flexi-cap scheme of your choice and redeem the investment as required.

    How are Flexi-Cap Funds Taxed?

    Taxation is another aspect that deserves your attention if you’re looking to learn more about what are Flexi-cap funds. As these are equity-oriented schemes, the capital gains are taxed similarly to any other equity mutual fund. The holding period will determine the applicable tax rates.

    • Long-Term Capital Gains (LTCG) Tax

      If you redeem your Flexi-cap fund investment after 12 months of investing, you’re liable to pay an LTCG tax of 10% + cess + applicable surcharge as flexi cap funds are equity oriented funds. However, LTCG of up to Rs. 1 lakh in a year is not taxable. *- The limit of Rs 1 lakh is inclusive of LTCG on equity shares and equity oriented mutual funds.

    • Short-Term Capital Gains (STCG) Tax

      If you redeem your investment within 12 months of investment, STCG tax of 15% + cess + applicable surcharge will be applicable as flexi cap funds are equity oriented funds.

    Who can Invest in Flexi-Cap Funds?

    Flexi-cap meaning is funds that invest in stocks across market capitalizations without any restrictions. As these are equity-oriented schemes, they might not be an ideal choice for risk-averse investors or someone looking to exit within a shorter tenure.

    However, if you’re aiming for long-term wealth creation and don’t mind the short-term volatility commonly associated with equity investments, Flexi-cap funds can be part of your portfolio.

    Invest Across Market Capitalizations with Flexi-Cap Mutual Funds

    By allowing you to invest in stocks across market capitalization and industrial sectors, Flexi-cap funds can potentially play a positive role in long-term wealth creation. Now that you know what is flexi cap mutual fund, compare the top schemes from this category to start investing.

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

     

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