What is Flexi Cap Fund – Benefits and should you invest?

These days wherever you go, you hear the importance of agility and flexibility. It is well known that if you want to capitalize upon the opportunities that life throws at you, then it is important for you to be flexible. The same principle applies to your investments as well. You have multiple needs in terms of goals and return requirements. At the same time, your risk profile and investment time period can also keep changing. Thus, it is important that your investments are flexible enough to meet these changes. Generally, to meet your multiple needs you would intuitively choose to invest in mutual funds. However, there are multiple mutual fund types. To meet your requirements of flexibility, you can choose to invest in a flexi cap mutual fund.

What is flexi cap fund?

A flexi cap fund is simply an equity mutual fund that invests in companies spread across market capitalizations. Based on SEBI’s scheme categorization, flexi cap funds are open ended equity mutual fund schemes that invest across large cap, mid cap, and small cap stocks and must invest at least 65% of the fund’s corpus in equities. In order to truly understand what is flexi cap fund, it is also important for you to understand the concept of market capitalization and how it can impact company risk and return potential. The market capitalization of a company is nothing but the total number of shares outstanding multiplied by its share price. Since the share price keeps changing, so does a company’s market cap. As per the regulatory body, based on market capitalization, companies can be divided into small cap, mid cap, and large cap based on the following:

• Listed companies that rank from 1st to 100th in the market cap rankings would be classified as large cap fund
• Listed companies that rank from 101st to 250th in the market cap rankings would be classified as mid-cap
• Listed companies that rank from 251st and below would be classified under the category of small cap fund

Benefits of investing in a flexi cap mutual fund

The biggest benefit of a flexi cap mutual fund is mentioned in the name itself. We know a flexi cap fund, meaning funds which can invest across categories of market capitalisation, is not bound by the need to stick to a specific market segment. Rather, the fund can invest in a cross-section of market caps, based on the need of the hour, and this enables you to benefit from the positive momentum in each of the categories. Therefore, the unique thing about a flexi cap fund is that it invests across all three market caps. So, if you choose to invest in a flexi cap fund, you can potentially reap the following benefits:

Portfolio stability: You get exposure to stable large cap companies that are well-established and have gone through multiple business cycles. They usually have stable earnings growth and can help you support portfolio downside when markets become volatile.

Portfolio growth: You will also get an opportunity to benefit from the high growth potential of mid and small cap companies that don’t have a proven track record or are just at the beginning of their growth journey.

Portfolio diversification: Since the portfolio is spread across market capitalizations, it gives you an opportunity to diversify your portfolio and effectively manage risk and return.

Difference Between Flexi Cap and Multi Cap

You now know what is a flexi cap fund. However, often people get confused between flexi cap funds and multi cap funds since both the funds are defined by market capitalization. Thus, in order to make an optimal investment decision, it becomes important for you to differentiate between a flexi cap fund and a multi cap fund. Below, we share the key differences. Coming to the issue of a flexi cap vs multi cap fund, there are various differences between the two, starting from the exposure to equities across market capitalisations. While a flexi cap fund needs to invest a minimum of 65% in equities, the figure stands at a minimum of 75% for multi-cap funds. This means that flexi cap fund meaning flexible funds can allocate a greater part of the portfolio to debt securities and money market instruments, and this comes in handy during volatile periods. Further, fund managers have full discretion when it comes to deciding allocation, making the fund primed for success.

Following are the key differences between the two –

Should you invest?

Knowing what a flexi cap fund is and deciding whether it is right for you are two different things. Such an investment can be right for you if:

• You have a higher degree of risk tolerance and will not start exiting the investment at the first sign of volatility.
• You have a long-term investment horizon and are ready to hold the investment for at least 5 to 7 years.
• You are looking to capitalize on the opportunities offered by mid and small cap stocks but want to mitigate the risk that stems from them.
• You are fine with short-term underperformance relative to the benchmark

While flexibility is good, you must ensure that you flex as per your body type or in this case, as per your investment portfolio and asset allocation strategy. As always, consult your mutual fund distributor to discuss whether a flexi cap fund could be an ideal investment option for you.

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