What Are Flexi-Cap Mutual Funds? Who Should Invest In Them?

Of late, the market watchdog SEBI in view of the best of interest of mutual fund investors have been implementing a series of changes and among them has also introduced a new category of equity mutual funds called flexi-cap category.

Here's all you want to know about the scheme:

For the equity mutual fund to be classified as a flexi-cap fund it needs to comply with only one regulatory guideline i.e. a minimum of 65 percent of its assets need to be maintained in equities. Further, for the category unlike new multi-cap funds there is no restriction with respect to allocation to any market cap.

How Flexi-cap mutual fund category evolved?

After the SEBI's change in mandate for multi-cap fund category announced in September that requires fund managers' to invest at least 25% of the corpus each in large cap, mid cap and small cap stocks from January next year, fund managers put forth their concern on the risk involved in investing 25% in mid and small cap stocks and thereon demanded the introduction of such a category.

And in view of the risk posed by the mandate for multi-cap funds, existing schemes will be allowed to reclassify themselves as flexi-cap fund category. "Mutual Funds have the option to convert an existing scheme into a Flexi Cap Fund subject to compliance with the requirement for change in fundamental attributes of the scheme in terms of Regulation 18(15A) of SEBI (Mutual Funds) Regulations, 1996," Sebi said in the circular. Also, investors on the likely change need to be a 30-day window to exit without any exit load implication.

Who Should Invest In Flexi-Cap Mutual Fund Category?

Mutual fund investors seeking complete flexibility in terms of owning a company or having their holdings in it without any restriction in terms of allocation to a particular market cap can consider the scheme. Further as in the current landscape when as per the recent RBI release the Indian economy has technically charted into recession, finding valuable smaller and mid-cap stocks shall be challenging and in the near term fund managers would have these funds more tilted towards large cap schemes and as and when things get favourable for mid and small cap stocks, they would include it in their funds' portfolio. So, while flexi-cap funds with allocation in large cap can to an extent offset the volatility, investors with a moderate to high risk appetite and investment horizon of 5 years should consider investment in the scheme.

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