What is a Flexi Cap Fund?

It is an equity-oriented mutual fund in which the fund manager has the freedom to invest across large, mid and small-caps, in any proportion; so long as a minimum of 65% is invested in equity. There are no rigid criteria for allocation to any of the market-cap categories.

Origin of Flexi Cap Fund

Was introduced as a new category of equity funds by SEBI in November 2020. The intent was to re-instate the flexibility enjoyed by erstwhile multi-cap funds before their allocation norms were tightened in September 2020.

Why should one invest in Flexi Cap Fund?

The inherent flexibility of these funds, lends certain benefits to investors that include:

• - Potential to capitalise on opportunities

  
  

  No restriction on inter-se allocation, means fund managers can pick stocks from any market cap, any sector or any theme, as and when opportunities arise. Let’s say there are several opportunities available in the midcap segment, the fund manager can freely increase the allocation to this segment without being bound by any rigid allocation criteria

• - More amenable to appropriate risk management

  
  

  Equity in different market caps come with different risks. Large caps are typically considered to be more established with stable growth, while mid and small -caps are of high risk-high reward potential. Markets too go through different volatility cycles which tend to favour different market cap segments. Flexibility of these funds give them the ability to respond better to market volatility.
  E.g.: In highly volatile, bearish markets fund managers may want to exit risky, small cap positions which can be done in a flexi-cap fund without having to worry about falling below a mandated market cap threshold

• - Potential for higher diversification at low minimums

• - Tax efficiency

  Being an equity-oriented fund, it is subject to beneficial tax provisions. Long term capital gains (>1 year) are exempt up to Rs.1 lac, being taxed at a lower rate of 10% thereafter. Short term capital gains too are taxed at a lower rate of 15%.