Are you the kind of investor who wants to grant the Fund Manager complete freedom to invest money based on their assessment of the stock market? If so, you might find the Flexicap Mutual Fund category interesting. In this review, we will discuss some good flexicap funds that can assist you in determining which one is best flexicap mutual fund suited for your needs.
If you are concerned about market volatility and unsure about which market capitalisation to focus on, Flexicap funds can be your reliable companion. These funds are a relatively recent addition to the equity funds category. They have the flexibility to invest in companies across various market capitalisation without any restrictions. Whether you prefer a one-time investment or want to carefully select the best Flexicap Mutual fund for a systematic investment plan (SIP), these funds are known to deliver consistent returns.
What are Flexicap Mutual Funds?
Flexi Cap funds are mutual funds that can invest in companies of various sizes and across different industries. This flexibility allows them to adjust their portfolio based on changes in the market.
Flexi cap funds were introduced by the Securities and Exchange Board of India (SEBI) on November 8, 2020. These funds are open-ended investments that primarily allocate at least 65% of their assets to stocks and related instruments, spanning different market capitalizations.
Unlike large-cap funds, which have restrictions on investing in mid-cap and small-cap companies (limited to 20% of the portfolio), flexi cap funds have the freedom to invest in companies of all sizes without such limitations. This is one of the key differences between flexi cap funds and large-cap funds.
Since there are no restrictions on specific market segments, the fund managers of flexi cap funds can choose investments based on the attractiveness of a particular segment, allowing for potentially better returns.
Flexi cap mutual funds are well-suited for long-term wealth creation, and it is recommended to have an investment horizon of 5-7 years for these types of funds.
What are Advantages of key features
Diversification: Flexi cap funds have portfolios that encompass various industries. This diversification helps spread risk and enables you to enjoy consistent returns over the long term, even during market volatility.
Complete control to fund managers: Skilled fund managers analyze the market continuously. They aim to minimize exposure to risky segments during market corrections, protecting your investment from unexpected declines in specific assets or industries caused by short-term or mid-term volatility.
Investment across market capitalisation: Unlike large-cap funds, which have limitations on investing in mid-cap and small-cap companies (restricted to 20% of the portfolio), flexi cap funds have the flexibility to invest across market capitalisation based on the performance of specific market segments.
Exposure to foreign markets: With the requirement to invest at least 65% in equity, Flexicap fund managers can also invest in foreign markets. This provides global diversification to your investment portfolio.
What are Risks in Flexicap Mutual Funds
While flexi cap funds generally demonstrate positive performance in both long run, it’s important to note that the fund managers of these funds have the freedom to invest in any market segment based on their outlook.
This means that some Flexicap funds may be more risky than others as fund manager can take some wrong call at times. Fund manager may think its good time for midcap and increase allocation and market may favour large cap.
Therefore, it is crucial to choose a scheme that aligns with your risk tolerance when considering investing in Flexicap funds.
How are Flexicap Mutual Funds Taxed
Flexi cap funds are subject to the same tax rules as other equity funds, as per the new Finance Bill 2023. Here are the key tax provisions:
- Short-term profits: If you make profits by selling your investment within a year, they are taxed at a flat rate of 15%, regardless of your applicable income tax slab rate.
- Long-term returns: For returns exceeding Rs. 1 lakh made after holding the investment for more than 12 months, a flat tax rate of 10% is applicable.
It’s important to note that these tax rates are subject to any changes in tax regulations from time to time. It’s always advisable to consult with a tax advisor or financial expert for personalised advice regarding taxation on your investments.
What is differences between a Flexicap fund and a Multicap fund?
Multi cap funds are required to allocate a minimum of 25% of their portfolio to each of the three market capitalisation: large-cap, mid-cap, and small-cap. So only remaining 25% of the portfolio is where fund manager can decide to which capitalisation he or she favours.
On the other hand, Flexicap funds do not have such restrictions on segment allocation. This means that the fund managers of Flexicap funds have the flexibility to invest across different market segments without any bias towards a specific market capitalisation.
Which is the best Flexicap fund to invest in for the long term in India?
Let us look at some of the good Flexicap Funds in India and what is their uniqueness. This should help you select right one for you.
Parag Parikh Flexicap Fund
This fund is for people who believe more in consistency rather than very high returns. Fund Manager Rajeev Thakkar is with fund since inception which is good factor.
This fund has significant foreign equity exposure so if you want some geographical diversification, this fund can help you in a tax efficient manner.
Philosophy is more towards value based investing and less on growth side. Very low turnover ratio means Fund does buy and hold strategy.
Quant Flexicap Fund
This fund is opposite of Parag Parikh Flexicap Fund. This has given better returns in last three years since new management took over Quant Mutual. So we can not take into account earlier rather poor performance as that was with another team.
Fund takes lot of risk in the sense takes sectorial calls. These have paid well as reflected in recent time. High turnover ratio means fund keeps selling current stocks and change portfolio very frequently.
Follows momentum strategy which means will chose stocks that are performing well in current market. Takes high exposure to any sector or group at times. So its only for High Risk High Reward philosophy believer.
HDCF Flexicap Fund
Another good consistent performer in Flexicap Mutual Fund Category. Seem to follows growth stock selection strategy. Has tendency towards Large cap stocks making it less risky for downturn but at times missing on mid-cap and especially small cap rallies.
Change in fund manager to Roshi Jain in Jan 2022 has not impacted fund performance. In fact, it has done better. However we need to wait and watch how she performs across different cycles.
Another fund that takes sectorial calls and not afraid to invest significant money in few sectors.
I have tried to review some good Flexicap funds more from their characteristics rather than returns. All these have given are more or less good returns but fund selection should not be just based on past returns. Investor needs to look at what is unique in each fund compared to others and if any fund ticks more boxes in line with investor’s choice, one should go with same.
So do let me know in comments as which Flexicap fund you like and are investing in.
Disclaimer : At the time of writing this, personally I have significant exposure in Parag Parikh Flexicap Fund.