June 13, 2024
Funds

Flexi cap mutual funds: Why do investors love them the most? 4 key reasons


There are 11 equity-oriented mutual fund categories including multi cap, large cap, mid cap, small cap, value funds, sectoral, ELSS and flexi cap funds.

Among all these variants, the most popular category based on the size of assets is flexi cap mutual funds.

There are 38 flexi cap mutual funds with total assets under management (AUM) of 3.27 lakh crore. This is higher than any of the remaining 10 equity fund categories.

For instance, there are 42 ELSS equity schemes while the total asset value of these schemes stands at 2 lakh crore. Similarly, there are 149 sectoral/ thematic funds but the total value of their assets amounts to 2.58 lakh crore, reveals AMFI data as on Dec 31, 2023.

For the unversed, let us first explain what flexi cap mutual funds are:

Flexi cap mutual funds

Flexi-cap mutual funds refer to the schemes which have the flexibility of investing in securities across their market capitalisation i.e., small cap, mid cap and large cap stocks.

As per the Sebi’s categorisation of mutual fund schemes, flexi cap funds must invest a minimum of 65 percent of assets in equity & equity-related instruments.

Flexi cap mutual funds, as a category, delivered 30.26 percent return in the past one year, 12.48 percent in the past two years and 18.13 percent in the past three years, shows the Morning Star data.

Year               Annualised return (%)
1                    30.26
2                      12.48
3                   18.13

(Source: Morning Star; return as on Jan 19, 2024)

Why do investors opt for flexi cap mutual funds?

1. Flexibility they offer: They are most popular among investors because their asset allocation is quite flexible and therefore, not confined to the norms which restrict categories such as large cap, mid cap and even multi cap funds.

“In flexi cap funds, fund managers take their calls to have exposure in all sections of equity, debt allocation, or even prefer to sit on cash. So in a single fund, you can get allocation to large cap, mid cap, small cap, and if needed in debt funds. Some flexicap funds even have international exposure. Due to recent changes in taxation, full-fledged international funds are taxed as debt funds so they are less lucrative for the higher tax bracket investors. Investment in such flexicap funds helps reduce your tax liabilities and you also get some exposure to US equity,” says Preeti Zende, Sebi-registered investment advisor and founder of Apna Dhan Financial Services.

2. New category: This is relatively a new category which was launched in Nov 2020 and is seen as a refined version of multi cap funds. It is, in fact, devoid of the sole limitation multi cap funds suffer from. In the multi cap — for instance — allocation must be made to the tune of 25 percent of assets in each of the three categories i.e., small cap, mid cap and large cap.

ALSO READ: Multi cap funds or flexi caps? What’s a better option?

Whereas, flexi caps don’t have any such limitation. They are completely flexible, as the name suggests, in terms of proportion of allocation to each of the three categories.

3. Good returns: They have delivered handsome returns as a category. As the chart above shows, the past one year, these funds have given better returns than those of broader index i.e. Nifty50 which rose 20 percent in 2023.

4. Tweaking of allocation possible: Fund manager can raise the fund’s allocation to small and midcaps when the market is witnessing a bull run, and reverse the ratio in favour of largecaps when the market turns volatile. This freedom to reverse the allocation is not there in any hybrid fund.

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Published: 22 Jan 2024, 02:09 PM IST



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