Before opting for a mutual fund scheme, investors tend to weigh the pros and cons of different categories of schemes. These include dividend yield funds, multi cap, index fund and flexi cap, value funds, focussed funds, among others.
Here, we give the lowdown on flexi cap mutual funds that offer a significantly high flexibility to fund managers of determining the allocation to different categories of securities on the market cap spectrum.
The Morning Star data shows that flexi cap funds, as a category, have delivered one-year returns of 14.59 percent, as on May 24, 2023.
What are flexi cap funds?
Flexi cap mutual funds are schemes that invest in securities across market capitalisation such as large cap, mid cap and small cap.
This category was launched in November 2020 and in these schemes, minimum investment in equity and equity-related instruments should be 65 percent of the total assets of the scheme.
Besides that, there is no restriction on investing in one category of assets on the market cap spectrum.
Aside from this, the markets regulator Sebi gave its nod to asset management companies to convert existing schemes into flexi cap schemes. As a result, a number of multi cap schemes came into the fold of flexi cap funds.
“A number of fund houses decided to convert their multi cap funds into flexi cap funds because of the flexibility they offer,” says Sridharan Sundaram, a Sebi-registered investment advisor (RIA) and founder of Wealth Ladder Direct.
Now, there are 35 flexi cap mutual fund schemes with a total assets under management (AUMs) of ₹2.52 lakh crore, as on April 30, 2023, shows the AMFI data. On the contrary, there are only 19 schemes in the multi cap category and all of them have a collective AUMs of ₹70,518 crore.
Different from multi cap funds
Multi cap mutual funds are mandated to keep a minimum of 25 percent of their assets’ allocation to each of the three categories i.e., small cap, mid cap and large cap. On the other hand, flexi cap mutual funds are not meant to follow any such requirement.
The fund manager is at his discretion to decide the ratio of allocation to these three categories. The only requirement is to invest a minimum of 65 percent of assets in equity and equity-related instruments.
Why should you invest?
There are a number of reasons for which investors should invest in flexi-cap funds. These include the following:
A. Flexibility: These schemes offer a greater degree of flexibility to fund managers, and to the investors, of investing in securities that have a scope of offering higher returns instead of being stuck in the poor-performing categories.
B. Long term wealth generation: Just like other equity assets, flexi cap funds offer a scope of long-term wealth generation to its investors.
C. Convenience of investing: Investing in a mutual fund is very convenient and easy. One only needs to create an account on the portal of an asset management company (AMC) and start investing in the scheme of their choice including a flexi cap fund after getting the KYC (know your customer) done.
D. Small investment: One can make an investment which is as small as ₹500 a month to reap the fruits of a mutual fund investment.
So, if someone wants to invest in a flexi cap mutual fund, the only financial commitment he needs to make is of ₹500 a month, or ₹5,000 in lumpsum in the beginning followed by ₹1,000 in the next tranche onwards.