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What are Flexi-cap Funds? Features, Key Considerations and Investment Strategy

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Flexi cap mutual funds belong to the equity mutual fund category and are characterized by their adaptable investment strategy. Unlike other funds with predefined allocations to specific market segments (such as large-cap, mid-cap, or small-cap stocks), flexi cap funds have the flexibility to invest across the entire spectrum of stocks based on market conditions and the fund manager's discretion. This approach allows fund managers to seize opportunities across different market capitalizations, sectors, and themes, making the scheme a suitable choice for investors seeking diversification. This article explores flexi cap funds in detail to help you identify if they can be a suitable investment avenue for you.

Table of contents

What is a flexi cap mutual fund?

Flexi cap funds are a category of mutual funds that offer a lot of flexibility to the fund manager in terms of asset allocation across large, mid, and small-cap stocks. The primary goal of flexi cap funds is provide investors with an enhanced opportunity to generate wealth by capitalising on the ever-changing market conditions.

Flexi cap fund managers have the discretion to move assets to where the growth potential appears most promising. This dynamism makes flexi cap funds an attractive option for investors who are keen on tapping into the benefits of diverse market caps without being rigidly bound to one.

How flexi cap funds work

Unlike other mutual funds, like multi-cap funds, which are mandated by the Securities and Exchange Board of India (SEBI) to stick to a particular market capitalisation, flexi caps are not confined by any such restrictions. However, for a scheme to be categorised as flexi cap, it must hold at least 65% of its assets in Indian equities. Flexi cap funds are a versatile investment vehicle that can adapt to varying market conditions to offer a potential growth advantage to investors.

Key features of flexi cap funds

1. Diverse investment strategy: One of the main attractions of flexi cap funds is their diversified investment approach. While some mutual funds might focus solely on large or mid-sized companies, flexi cap funds can shuffle investments based on where they see value, irrespective of the company's size. By using an SIP calculator online, investors can project the potential growth of their investments in flexi cap funds, helping them understand how their diversified contributions could perform over time and whether it aligns with their financial objectives. This tool can assist in adjusting the SIP amounts based on expected returns from such flexible investment strategies.

2. Dynamic asset allocation: Flexi cap funds are actively managed. This means the fund manager continually assesses market conditions and adjusts the asset allocation accordingly. If the mid-cap segment shows potential, assets might be shifted there; or if large caps seem promising, then investments can be adjusted in that direction.

3. Risk and returns: Flexi cap funds invest in fast-growing companies in up-and-coming industries to give you potentially reasonable returns on your investment. But their versatility ensures that they are neither fully exposed to the volatile movements of smaller stocks nor entirely dependent on the often-sluggish movement of large caps. The key is to stay invested for the long haul and get potentially better risk-adjusted returns instead of worrying about short-term market movements.

4. Broad market exposure: Investors gain exposure to different segments of the market. Whether it's the stability of large-cap stocks or the growth potential of small caps, flexi cap fund investors can potentially enjoy the best of both worlds.

5. Adaptable to market conditions: Due to their flexible nature, flexi cap funds are well-equipped to adapt to various market conditions. If there's a downturn in one market segment, the fund manager can shift focus to another segment that shows promise.

6. Liquidity and taxation: Like most mutual funds, flexi cap funds also offer good liquidity. The tax implications for flexi cap funds are like those of other equity mutual funds

Factors to consider before investing in flexi cap funds

Risk tolerance: While flexi cap funds offer the potential for reasonable returns over the long term, they are subject to market volatility. Investors must assess their risk tolerance before investing.

Fund manager's track record: Research the track record and experience of the fund manager managing the flexi cap fund.

Investment horizon: Assess your investment horizon and align it with the fund's investment objectives.

How to invest in flexi cap funds?

Mentioned below is a step by step guide for flexi cap investment:

Choose a platform: Select a reliable investment platform such as a distributor, online mutual fund platform, or the fund house’s website to facilitate the investment process.

KYC compliance: Ensure you complete the KYC compliance process by providing the necessary documents and details to the distributor or mutual fund company.

Invest and monitor: Invest the desired amount through the chosen platform. Regularly monitor your investment.

Who should invest in flexi cap funds?

Flexi cap funds are a versatile investment option suitable for a wide range of investors, including:

Moderate to aggressive investors: Investors with moderate to high-risk tolerance seeking opportunities for capital appreciation.

Long-term investors: Flexi cap funds are suited for long-term investors who can remain invested for several years.

Goal-oriented investors: Individuals with specific financial goals such as funding their child's education, buying a house, or planning for retirement can invest in flexi cap funds.

Risks associated with flexi cap funds

While flexi cap funds offer certain benefits, it is crucial to understand the risks associated with this investment option before committing your hard-earned money.

  • Market volatility: The same diversification that provides relative stability can also expose flexi cap funds to market volatility. During turbulent market conditions, all segments of the market may experience a negative impact. Though diversification helps mitigate risk, it does not eliminate it entirely. Thus, investors must be prepared for short-term fluctuations in the value of their investment.
  • Managerial expertise: The success of any mutual fund, including flexi cap funds, heavily relies on the expertise of the fund manager. As these funds do not have a predetermined focus, the responsibility lies on the manager to make strategic decisions regarding asset allocation. At times, the fund manager may not be able to capitalise on market opportunities effectively, impacting the fund's performance.
  • Sector and stock concentration: Flexi cap funds may sometimes exhibit sector or stock concentration if the fund manager takes a bullish view on specific sectors or stocks. While this approach can lead to impressive returns if the selected sectors or stocks perform well, it also increases the fund's vulnerability to adverse events within those sectors.

How flexi cap funds perform in market swings

Market swings are changes in the financial markets that lead to more volatility. They can be caused by a variety of factors, such as global supply chain issues, policy changes, interest rate announcements, geopolitical events, or adverse news. Market swings can affect the entire market, a particular sector, or even just one company. In such situations, the inherent flexibility of flexi cap funds can prove to be a game changer. The adaptive nature of flexi cap funds can act as a balancing factor during periods of market turbulence.

Let us understand how flexi cap funds and their managers navigate market fluctuations:

  • Dynamism in asset allocation: In a bull market, a flexi cap fund manager can increase their exposure to mid-cap and small-cap stocks, which tend to outperform large-cap stocks during market peaks. In contrast, during a bear market, a flexi cap fund manager can reduce exposure to mid-cap and small-cap stocks and increase their exposure to large-cap stocks, which tend to be more stable during downturns.
  • Active management expertise: Skilled fund managers play a pivotal role in the performance of flexi cap funds. Their informed analysis of market trends and economic indicators allows them to make timely and informed investment decisions. An active management style ensures that your portfolio is constantly fine-tuned to respond to ever-changing market dynamics.
  • Seizing opportunities: Market volatility often presents hidden opportunities. Flexi cap funds, with their adaptable approach, are better positioned to capitalize on undervalued stocks that may have the potential to rebound strongly when market conditions stabilize.

Flexi cap funds investment in market swing: A strategic move

Capitalizing on market dislocations: Market swings generally cause stock prices to temporarily deviate from their fair value. This is when flexi cap funds can take advantage of these deviations and potentially generate higher returns as compared to funds with more rigid investment strategies.

Long-term growth potential: While flexi cap funds are adept at navigating short-term market fluctuations, they are also well-equipped towards long-term wealth creation. Their ability to invest across market capitalizations ensures that your portfolio is well-positioned for sustained growth over the years.

Risk management with diversification: Flexi cap funds inherently offer a diversified portfolio. Diversification spreads the risk across a range of stocks, industries, and market segments further enhancing resistance to market volatility.

How flexi cap funds adjust their portfolio

Flexi cap funds have the flexibility to adjust their portfolio allocation based on changing market conditions and investment opportunities. Fund managers closely monitor the market and continuously evaluate the potential of different market segments. For instance, during times when large-cap stocks are expected to performing well, the fund manager may allocate a higher portion of the portfolio to such stocks. On the other hand, if mid-cap or small-cap stocks show strong growth potential, the fund manager may increase exposure to these segments. Thus, dynamic portfolio adjustment ensures that the fund remains well-positioned to capture growth across the market spectrum.

FAQs:

How can I invest in flexi cap funds?

You can invest in flexi cap funds through distributors or through the website The other way to go about it is to invest through investment platforms.

When should I start investing in flexi cap funds?

Flexi cap funds are often appropriate for investors who have a relatively high risk appetite and are prepared to put their money into an investment for a minimum of five years in order to achieve their long-term financial objectives. Before making any investing decisions, it is always wise to speak with a financial advisor.

How can Bajaj Finserv Flexi Cap Fund benefit me?

The expertise of the fund manager and a distinctive investment philosophy can potentially benefit the investor. This flexi cap fund is based on a megatrend investing strategy which focuses on long term trends for future growth and returns.

Do flexi cap funds perform better than other funds?

Flexi cap funds seek to diversify across companies and sectors thus seeking to mitigate impact on capital that might otherwise be relatively more due to overconcentration in one industry. Flexi cap funds have the potential to benefit investors in the long run by diversifying across industries and reducing risk.

How can I mitigate the risks associated with this fund?

To mitigate the risks associated with this fund, investors should invest systematically through the SIP route and stay invested for the long run to minimize the impact of market volatility in short-term investing. To mitigate the risks associated with this fund, investors should invest systematically through the SIP route and stay invested for the long run to minimize the impact of market volatility in short-term investing.

How do I determine if a flexi cap fund aligns with my investment goals?

To mitigate the risks associated with this fund, investors should invest systematically through the SIP route and stay invested for the long run to minimize the impact of market volatility in short-term investing.

Who should invest in flexi cap fund?

Investors who seek exposure to the equity market and have a high risk-appetite can consider flexi cap funds. For people who feel comfortable investing their money for a longer period, such as five years or more, flexi cap funds can be a preferred option.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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