Flexi cap funds and their objectives

 

What is a flexi cap fund? If you are still wondering about the same, you should know that these are types of mutual funds India which are not limited towards investing only in companies with predetermined market capitalization levels. This fund structure type is clearly shown through the details or prospectus for investors. These flexi cap funds may offer greater choices for investments to managers along with ample scope of diversification alongside. The company size is not a limitation for these funds and they may invest in any entity, irrespective of its overall size and other aspects.

SEBI introduced this new category of mutual funds India, known as flexi cap funds, on the 6^th of November, 2020, while retaining its multicap fund segment as well. The newly created flexi cap fund segment was a lot like the multicap fund category prior to SEBI mandating investment limits, i.e. 65% of capital for equity on the overall basis without segment-wise limitations. The circular from SEBI also enabled mutual fund houses to convert present multicap fund plans to the flexi cap segment. Equity markets have higher levels of volatility and the market will have higher risks and specific capitalization category risks and volatility as well.

In any correction phase of the market, there will be a requirement for investing a minimum capital proportion, thereby opening up an opportunity use a good scheme as a buffer. This will help in lowering overall exposure towards the minimum capital requirement. Segments like large cap schemes are usually required to possess at least 80% of capital in large cap funds all the time. Owing to such rigid factors, these plans cannot lower exposure to equity below the 80% threshold and hence keep themselves safeguarded from any anticipated downturn. The flexi cap segment should invest just 65% of capital in equity markets while being considerably flexible at the same time.

Similarly, when we observe volatility throughout multiple segments or when any particular category is expected to perform better or worse than other categories, flexi cap segment has a blessing in investment freedom throughout many categories as against small and mid cap segments. In the latter, they have to invest at least 65% of capital in companies falling within the purview of the same. When the large cap segment is anticipated to perform better than other categories, small and mid cap schemes cannot relatively perform since they will be bogged down with the requirement to invest at least 65% in the companies within their own segment. Similarly, when the midcap or small cap category is expected to perform better, then large cap schemes cannot get the benefits of this potential. They may invest just 20% in small and midcap entities. Flexi cap schemes always live up to their name. They help you get benefits at all times irrespective of whether the large, small or midcap category does better in the market.

Owing to the lower 65% threshold, the segment comes with ample legroom for foreign market investments and diversification at a global level. Profits from these investments are taxed at 15% irrespective of the slab rate. Retaining the investment for more than 12 months will classify the same as a long-term one and the rate of taxation will be 10% after INR 1 lakh as the initial exemption. Key goals of these funds include mitigating risks, diversifying the portfolio and tackle varying market cycles.