A flexi-cap fund is a type of mutual fund which invests in large cap, mid cap, small cap companies. The percentage of investment allocation is not predefined based on the market capitalization of the companies. With flexi-cap funds, the fund manager has the flexibility to invest money across different companies and different sectors. They are the second largest category amongst equity based mutual funds. The applicable benchmark for flexi-cap funds which they try to outperform is the NIFTY 500 Total Return Index.
Understanding the Flexi-Cap funds:
Flexi-cap funds typically invest in financially sound companies, thereby allowing investors to diversify their investment portfolio across different market capitalizations while mitigating risk and lowering volatility. With no restrictions on investment style, the fund manager gets a free hand to choose among growth stocks, value stocks, and blue chip stocks. That said, being a diversified fund, flexi-cap funds must invest at least 65% in equity and equity related instruments. Now, one might think that a standard allocation approach may be 33.33% in large cap, mid cap, small cap companies – well this is not how fund managers approach it.
A few scenarios of allocation that a Flexi-Cap fund may have:
| Scenarios # | Large-Cap % | Mid-Cap % | Small-Cap% | Other Instruments like Debt & Gold | % of investment in Equities only |
| A | 30% | 30% | 30% | 10% | 90% |
| B | 50% | 20% | 10% | 20% | 80% |
| C | 45% | 10% | 15% | 70% | |
| D | 40% | 15% | 10% | 35% | 65% |
The above scenarios are mere examples to understand how allocation may work with flexi cap funds as they are not predetermined and are flexible based on the discretion of the fund manager after taking into account various factors.
Flexi-cap funds cater to the needs of both risk-averse and risk-taking investors by allowing diversification into varied stocks and companies. The returns generated by flexi-cap funds are observed to be inflation-beating in most scenarios. The question that often arises is – how does one cater to the needs of all whilst maximizing the returns? Well, the fund manager tries to act on the allocation based on the prevailing market conditions thus aiming for better returns.
For instance, if markets are experiencing a bull run i.e., an upward trend in value and small cap companies are performing well then the fund manager may allocate more percentage of the fund to small cap stocks. If the markets are experiencing a bear run i.e., downward trend in value then the fund manager may rely on allocating more funds towards large cap stocks than mid-cap or small-cap stocks in order to hedge the effects of the market.
Here are 5 flexi-cap funds that are popular among retail investors in no particular order:
- Parag Parikh Flexi Cap fund
- PGIM Flexi Cap fund
- Quant Flexi Cap fund
- Canara Robeco Flexi Cap Fund
- UTI Flexi Cap Fund
The above funds are mere examples of flexi cap funds that have been popular among retail investors over the past few years with historically proven data of yielding better returns in comparison with their respective benchmark indices.
Conclusion:
So, if you are looking to diversify your mutual funds’ investment there hasn’t been a better time like now to scout the flexi cap funds that come with a long list of benefits. Open a Demat account today with Angel one to start exploring the benefits of flexi cap funds. Please check out our knowledge center to know more such interesting things about investments.
