Best Flexi Cap Funds
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About Flexi Cap Mutual Funds
SEBI introduced Flexi Cap Funds on November 8, 2020. These funds are open-ended and dynamic funds that invest at least 65% in equity and equity-related instruments across different market capitalisations.
The proportion of capital allocated to small-cap, mid-cap and large-cap stocks changes over time. In contrast, large-cap funds can only invest up to 20% in mid-cap and small-cap companies, but flexi-cap funds do not face any such restrictions.
With no limits on the market cap-based segments or any other sector-based categorisation, fund managers have complete freedom to invest capital based on a segment’s attractiveness instead of being restricted to a particular market segment. They can also change their capital allocation if the market trends change.
Flexi Cap Mutual Funds are best suited for long-term investment wealth creation over an investment horizon of 3-5 years or more.
How Do Flexi Cap Funds Work?
Flexi Cap Funds invest in companies of all market capitalisations without any restrictions. This means that the fund manager can invest in large-cap, mid-cap, and small-cap companies, depending on their assessment of their growth and risk potential.
Flexi-cap funds offer investors the opportunity to diversify their portfolios across different market segments and companies, which can help mitigate risk and lower volatility. This makes them a good option for investors who are looking for long-term growth potential, but who are also willing to accept some risk.
You can invest in units of the Flexi Cap Fund today and sell them a few years later. However, the composition of the fund may not be the same in terms of debt and equity, or small cap, mid cap and large cap within the equity segment.
Features of Flexi Cap Funds
The following are some of the features of Flexi Cap Funds:
- These funds offer a diversified portfolio made of a variety of shares as well as debt instruments. As a result, they can modify their composition in order to balance their risk and return. These funds may hence provide steady returns even during bear market phases.
- The fund manager can, from time to time, choose to reassess the fund allocation and switch between different companies and sectors depending on their performance.
- Due to the high level of liberty that fund managers can take in such funds, factors beyond just the market capitalisation, such as the track record, growth potential, and risk come into play while deciding the composition of the funds.
Advantages of Flexi Cap Funds
The following are some of the advantages of investing in Flexi Cap Funds:
- They give you exposure to stocks of various sizes and sectors. This allows you to diversify your holdings, thus reducing risk and making your returns less volatile.
- Since they are dynamic, they can adjust for both short-term and long term changes in market trends. This reduces the level of risk and balances out the level of returns over the years.
- They are well-suited for long-term goals that are more than 5 to 7 years away.
Risks Involved in Flexi Cap Funds
The following are the risks that you may face while investing in Flexi Cap Funds:
- Market risk – This is the risk related to the market price of the assets dropping due to changing trends in the market. Stocks and bonds may both undergo such a drop in their value due to market movements.
- Lack of alignment with your goals – This problem arises because of the fact that Flexi Cap Funds are dynamic in nature. Therefore, it may happen that you invested in a particular fund at a time when the fund had a low risk profile, but over time the fund changed its capital allocation and became a much higher risk-based fund. They can do so by increasing the proportion of equity, especially small cap stocks in their overall portfolio. In such cases, the fund may suddenly stop being aligned with your original investment goals and strategy.
Factors To Consider Before Investing in Flexi Cap Funds
Before you contemplate investment in a Flexi Cap fund, it will be good if you check the historical performance of the funds you are opting to invest in. Having said this, there are other factors to consider before you invest:
- Risk tolerance – You need to check the range of assets that the Flexi Cap fund is investing in and their proportion as well. Then you can better understand what level of risk and volatility you may have to face.
- Timeline of investment – You need to understand that the returns from the flexi cap may not be optimised until a few years have passed. Considering this and the timeline of your other investments, choose the period that you want to stay invested in this fund.
- Balanced portfolio – Although flexi cap funds are run by capable fund managers, you should manage your risk well by diversifying your investments and allocating capital in a way that leads to a balanced portfolio.
- Fund manager – Since the market caps are adjusted by the fund managers, their ability to do so optimally becomes an important factor behind the outcome. Check the fund managers’ experience to assess their quality.
Who Should Invest in Flexi Cap Funds?
Investors with the following characteristics can find Flexi Cap Funds attractive:
- Moderate to high-risk tolerance – Since a minimum 65% of the capital is invested in equity, you need to be able to handle market volatility of the share prices over a long period of time.
- Investment horizon of 5-7 years – Equity investments may see volatility in the short run. Hence, you need to be able to stay invested without much stress for about 5 to 7 years in order to reap the most from the investments.
Taxability of Flexi Cap Funds
Flexi-cap funds’ taxation has two main components, i.e. capital gains and dividends.
The dividends that you receive are added to your taxable income and are taxed as per the income bracket that you fall under. In addition to this, there is also a 10% TDS on dividend amounts ₹5,000 in a financial year.
Short-term capital gains, i.e. those made within 1 year of investment, are taxed at 15%, regardless of what income level you fall in. Long-term returns i.e. those made after more than a year of holding the investment, in excess of ₹1 lakh, are taxed at 10% flat.
How to Invest in Flexi Cap Funds?
Investing in the Flexi Cap Mutual Funds is an easy process when you do it through your Angel One account. Just follow these simple steps:
Step 1: Log in to your account on Angel One.
Note: In case you are yet to open an account with Angel One, open a free demat account with us within a few minutes by submitting the relevant documents.
Step 2: Find a Flexi Cap fund that suits your needs and risk profile. You can learn more about the Flexi Funds on the Angel One app. Things to do at this stage are:
- Search for the fund you want to invest in based on your preferred assets.
- Analyse the fund’s past performance, tax impact, future potential, etc. You can calculate the potential returns using the mutual fund returns calculator.
- Evaluate the fund’s level of risk, its ratings, lock-in period and expense ratio.
Step 3: Once you decide which Flexi Cap Fund you want to invest in, open your Angel One account, go to the Mutual Funds section, and buy the mutual fund’s units. The steps involved are:
- Decide whether you want to invest via SIP or a lump sum one-time investment.
- Choose a monthly SIP date. Enter the amount you want to invest and choose your preferred payment mode.
- After placing the order, you can create an AutoPay to make hassle-free future instalments in case of SIP investments.
Top 5 Flexi Cap Funds to Invest in
The following are the top Flexi Cap Funds in India:
| Name of the Fund | AUM (in ₹ crore) | Minimum Investment (₹) | 3 Year CAGR | 5 Year CAGR |
| Quant Flexi Cap Fund | 1,908.70 | 5,000 | 31.97 | 24.91 |
| Parag Parikh Flexi Cap Fund | 42,784.56 | 1,000 | 23.56 | 21.60 |
| JM Flexicap Fund | 640.69 | 1,000 | 29.52 | 20.73 |
| PGIM India Flexi Cap Fund | 5,816.46 | 5,000 | 21.54 | 20.48 |
| DSP Flexi Cap Fund | 8,976.06 | 100 | 22.25 | 19.10 |
The above funds have been chosen based on their 5 year CAGR as of October 2023. The figures are subject to change.
Quant Flexi Cap Fund
This is a fund with an expense ratio of 0.77% and no lock-in period. It was formed in January 2013. It requires a minimum lump sum investment of ₹5,000. Its benchmark index is Nifty 500 TRI.
Parag Parikh Flexi Cap Fund
This is a fund with an expense ratio of 0.66% and no lock-in period. It was formed in May 2013. It requires a minimum lump sum investment of ₹1,000. Its benchmark index is Nifty 500 TRI.
JM Flexicap Fund
This is a fund with an expense ratio of 0.96% and no lock-in period. It was formed in January 2013. It requires a minimum lump sum investment of ₹1,000. Its benchmark index is the S&P BSE 500 TRI.
PGIM India Flexi Cap Fund
This is a fund with an expense ratio of 0.39% and no lock-in period. It was formed in February 2015. It requires a minimum lump sum investment of ₹5,000. Its benchmark index is Nifty 500 TRI.
DSP Flexi Cap Fund
This is a fund with an expense ratio of 0.78% and no lock-in period. It was formed in January 2013. It requires a minimum lump sum investment of ₹100. Its benchmark index is Nifty 500 TRI.
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