What are Flexi Cap Funds and the Benefits of Investing in them?

What are Flexi Cap Funds and the Benefits of Investing in them?

The mutual fund world has so many different options. This is the main spot where people stumble. Given the number of options, it's understandable to be confused about the different funds. But, honestly, it isn't rocket science. We can get through it together. However, you still need to understand that different funds in the mutual fund market serve different purposes.

If you are risk-averse and are looking for stable income, you should be choosing a dividend option. If you are in a hurry and would want to redeem your investment in six months, you would have to choose a liquid fund. So, research before investing - research is your holy grail. Here, we can talk about Flexi Cap Funds and what they really are so you can get a clear picture.

What is a Flexi Cap Fund?

Flexi-cap funds are those that invest in companies with a range of market capitalizations, such as large-cap, mid-cap, and small-cap equities. These funds invest in all large-cap, mid-cap, and small-cap companies' equities.

A flex-cap fund helps investors to diversify their investment portfolio across companies with varying market capitalizations, thereby reducing risk and volatility. Diversified equities funds and multi-cap funds are other names for them.

Unlike mid-cap or small-cap funds, which invest in companies based on market capitalization, Flexi-cap funds can invest in any firm regardless of its market value. The fund manager evaluates the growth potential of numerous companies, independent of size, and allocates funds to various market categories and companies.

How Does a Flexi Cap Fund Work?

Flexi-cap funds have a diverse portfolio, which allows the fund to balance risk and return rather well. These funds are also noted for providing consistent returns even during weak market periods.

In addition, the fund manager has the option of periodically reviewing the fund allocation and switching between different companies and sectors based on performance.

For example:- if a fund manager of Groww discovers that Groww PGIM India mutual fund, in which he or she has invested, has become unappealing over time, the fund manager can shift the allocation to a different market segment that has recently performed better. This provides investors with the advantage of not only investing in the best-performing equities but also having the opportunity to escape from the unappealing ones.

Market capitalization is a factor to consider when selecting firms to invest in through mutual fund houses. Not only does market capitalization indicate the size of a firm, but it also indicates other factors that investors consider, such as track record, growth potential, and the risk associated with these companies.

Companies Based on Market Capitalization

There are mainly three categories under this:

  • Large-Cap
  • Mid-Cap
  • Small-Cap

Who Should Invest in this Fund?

Flexi-cap funds are typically appropriate for investors who are willing to invest their money over a period of five years or more in order to achieve a long-term financial goal. Returns can be expected to outperform inflation and outperform fixed income options. Because of its adaptability, it drew investors' interest and grew to become the second-largest equity mutual fund category after large-cap funds.

The key incentive for someone to look into this fund is the flexibility it offers. The portfolio can be shaped by the fund manager in response to changing market valuations and macroeconomic conditions. If the fund manager believes that the broader markets are better positioned than large-caps, he or she can change the portfolio allocation to mid-and small-caps to take advantage of the upswing in these segments. As a result, Flexi-Cap Funds have become a viable choice for investors to consider.

As a result, in order to lower portfolio risk, investors should look at large caps, which can assist to offset some of the volatility. Flexi cap funds are thus ideal for investors with a moderate to high-risk tolerance and a five-year investment horizon.

Is this Fund Beneficial?

These funds provide investors with a well-diversified portfolio by balancing risk and reward. These funds are also known for providing consistent returns even during volatile and bear market periods. Furthermore, if the fund manager notices that a certain market segment in which he has invested has proven to be unattractive over time, the fund manager might adjust the allocation to a more profitable and alternative section.

This gives investors the option of not just investing in the best-performing companies but also exiting from the unappealing ones. Market capitalization is an important factor for mutual fund houses when deciding which companies to invest in.

Market capitalization alone cannot always be used to make a decision because other aspects such as a company's growth potential, track record, associated risks, and so on all play a significant role. Because these funds invest across market size divisions, they provide investors with both growth and value, establishing a balance between risk and volatility in a single portfolio.

How is a Flexi Cap Fund Different from a Multi-Cap Fund

Both Flexi-cap and multi-cap funds invest in companies of various sizes, allocating assets to stocks of large, medium, and small enterprises. However, multi-cap funds are required to keep 25% of their assets in all capitalization groups. Even if fund managers have the ability to change asset allocation between market groups based on market movements, they must adhere to this mandate. As a result, they can only switch by a small margin.

Flexi-cap funds, on the other hand, are not bound by such constraints and are extremely adaptable. They are a significant newly launched fund that was launched to differentiate itself from the investment portfolio of multi-cap funds.

Flexi-cap funds offer more discretion to choose equities regardless of firm size or market segment, as well as to switch from one to another. Thus, Flexi-cap funds follow a multi-cap investment strategy, but with greater freedom and fewer limits.


We wind up here. If a Flexi cap fund is the right one for you, you would not have to be waiting, starting investing, but just remember - they also involve risks.