Posted on 6/13/2023 6:30:00 PM

With the success of mutual funds as wealth creators, several new mutual fund categories have been launched to help investors reach their investment goals. From multi-cap to balanced advantage funds, investors now have plenty of investment options, with each mutual fund category fulfilling a different objective. Flexi-cap funds are another option for mutual fund investors, helping them create wealth potential through a mix of equity and other asset classes. 

What are Flexi Cap funds?
Flexi Cap Funds invest at least 65% of their assets in equities or equity-related companies. These funds invest in equities of small-cap, mid-cap, and large-cap companies.

Flexi-cap funds can help investors diversify their investment portfolio among businesses with various market capitalizations while aiming to reduce volatility and risk. They are ideal long-term investment options, with the potential to hedge against inflation.

Benefits of Flexi Cap Funds

1. Market volatility
You can access the entire equity market (both companies and sectors). Flexi Cap Fund managers can invest in large-cap, mid-cap, and small-cap companies, helping you mitigate the volatility in one segment and aim to make decent long-term returns.

2. Open-ended schemes
Flexi-cap funds don't have a set maturity date or lock-in term because they are open-ended equity schemes. You can make a one-time investment in any Flexi Cap scheme or begin a Systematic Investment Plan (SIP) and redeem the investment when needed.

3. Diversification
Your investment in a Flexi Cap fund is not restricted to one market segment. The fund manager can reallocate funds to different market caps with an aim to maximise returns if the underlying assets underperforms or if better investment opportunities arise.

Taxation of Flexi Cap Funds

1. Short-Term Capital Gains (STCG)
Due to the requirement that at least 65% of their assets be invested in equity, Flexi Cap Funds are classified as equity-oriented schemes. Returns realised within a year are referred to as Short-Term Capital Gains (STCG). Such profits are subject to a 15% tax rate.

2. Long-Term Capital Gains (LTCG)
The realised returns, which you receive if you sell your units for a profit after a year, are taxed at 10%. However, these returns will only be subject to Long-Term Capital Gains (LTCG) tax if they exceed Rs. 1 lakh.

How do Flexi Cap Funds work?

Investors in Flexi Cap Funds must place at least 65% of their money in stocks and associated securities. The fund manager can move assets to various market cap categories if the market performs poorly and is not limited to a particular section.

You can invest in successful businesses with a proven track record. If your investment underperforms, you can switch to another part or exit the present one. As a result, Flexi Cap Funds are a good investing option, are reliable and aim to provide respectable returns.

The risks involved in Flexi Cap Funds

Investors interested in Flexi Cap Funds should know about the risks involved. Before investing, they must evaluate their risk tolerance and appetite. Flexi Cap schemes also come with certain amount of market risks just like other mutual fund schemes, such as volatility, geopolitical unrest, and economic slump.

Some of these fund types may be riskier than large-cap funds but require a lower risk appetite than small and mid cap funds because they invest across market capitalizations. Therefore, confirm that your financial objectives and the fund manager's goals for managing risk and returns are compatible. The portfolio allocations may also be changed at any time based on the fund managers' evaluations.

Given that no two people have the same financial objectives, it is difficult to determine if the Flexi Cap Fund is preferred more than any other funds. Therefore, before making a choice, you must decide on your investing time horizon, investment objectives, and risk tolerance.

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

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