Flexi-cap fund as a category was introduced by SEBI in November 2020, as there was a lot of debate on the circular issued by SEBI on 11th September 2020 restricting the flexibility of the Multicap funds.
The circular mandated the Multicap funds to Invest at least 25% in Mid-caps and 25% in Small caps, in a view to making them true to label multi-cap funds. The majority of the Multicap funds had a higher allocation towards the large caps as they were preferred by the fund managers as well as the investors. The circular gave a time till 31st Jan 2021 for the funds to align to the new norms.
Asset management companies expressed dismay as it would restrict their ability to move, and sudden off-loading of the large-cap stocks would create a disruption in the market. Considering the debate and the impact on the markets SEBI took a prudent stand to start a new category of Flexi cap Funds in November which allowed the fund managers to invest across market caps according to their preferences.
Key Takeaways
- Know the Difference between Flexi-cap & Multi-cap Funds
- Suitability and Positioning of the Funds
- Are Flexi-caps better than Multi-cap Funds
know the true features of the fund
Flexi-cap Funds
- 65% of investment to be allocated in equities and related instruments and 35% in debt and cash and equivalents.
- Absolute freedom to invest in any company across the market capitalization.
- Go Anywhere approach & greater adaptability
Multicap funds
- 75% of investment is to be allocated in equities and its related instruments.
- As per market capitalization, 25% of minimum investment to be allocated in each of large, mid, and small-cap segments.
- Lacks Flexibility
Why Flexi cap funds?
Diversification in the true sense
Large caps provide solid long-term returns, Mid-cap companies have a greater growth potential than the large caps and react more actively to the changes in a business environment.
Small-cap stocks might offer the highest growth potential as they have the furthest to grow and are more likely to react swiftly to the market opportunities. Mid and small caps are volatile and risky but a balanced combination with the Large caps may make them value enhancers.
Have a look at the chart below how the different market segments have behaved in the past.
A single market segment does not outperform or underperform for a long time. The Flexi cap fund managers can take advantage of the same and generate the alpha for the investors by picking up the winners which rotate across different market cap segments.
Core Portfolio Potential
Investors can consider Flexi-cap funds as a core portfolio holding for their ability to adapt to changing market conditions. The funds will provide a mix of stability with growth. The Funds would be a better option than selecting pure mid or small-cap funds which are highly volatile. The Flexi cap fund is in a way solution for investors who want to invest in small and mid-caps but want to avoid volatility.
Recommended Flexicap Funds
| Name of the fund | AUM in Crs. | Large- Cap allocation | Midcap allocation |
Small-cap allocation | CAGR Return 3years |
CAGR Return 5years |
CAGR Return 10years |
Remarks |
| UTI Flexicap Fund | 20922 | 58.38% | 30.55% | 8.66% | 18.24% | 17.50% | 16.97% | The Best in the category |
| Parag Parikh Flexi cap | 13187 | 37.86% | 13.91% | 13.74% | 22.31% | 20.81% | *26,75% allocation to US Equities. The Star Outperformer | |
| Kotak Flexicap | 36355 | 69.52% | 28.05% | 1.37% | 13.10% | 14.46% | 16.63% | Consistent Performer |
| Axis Flexicap | 8938 | 79.21% | 7.62%. | 5.57% | 16.45% | Top Quartile performer | ||
| DSP Flexicap | 5985 | 57.42% | 28.66% | 12.94% | 17.79% | 16.71% | 15.4% | Top Quartile performer |
Conclusion
Flexi cap funds should be a part of your core portfolio along with the large-cap funds for generating the additional alpha in all market conditions. Investors can also opt for SIPs for long-term goals. Flexi-cap funds will be a cake you would have and eat it too as they provide you with the stability as well as the enhancement of growth from mid and small-cap allocations.
Do share your views and feedback in the comments section.
