Flexi Cap Fund: Know About the New Mutual Fund
Category
After the multi-cap fiasco, the market regulator,
SEBI has introduced a new mutual fund category called Flexi Cap funds.
Multi cap fund is a category of equity fund that
can invest in large cap, mid-cap and small-cap stocks. However, these funds
focused more on large caps and fund managers invested a significant portion of
the portfolio in large-cap stocks. To make multi cap funds true to its label,
SEBI directed fund houses to invest a minimum of 25% of the fund’s portfolio in
large cap, small cap and mid-cap stocks.
What is a Flexi Cap fund?
In the first week of November, SEBI introduced a
new category under Equity Schemes called Flexi Cap Fund. Flexi Cap Fund is a
mutual fund scheme that can invest across all sizes of market capitalization,
i.e., large cap, mid-cap and small cap. Fund houses have to invest a minimum of
65% of total assets in equity assets.
Fund houses can launch a new scheme or convert an
existing scheme into a flexi cap fund.
What’s in it for investors?
As a scheme investing across large, small and
mid-cap stocks, flexi cap funds are dynamic in nature. The diversified
investment also facilitates in mitigating the risks and absorbing financial
shocks from a volatile market.
Now fund managers have the flexibility to invest in
stocks irrespective of the size, as flexi cap funds can invest dynamically
across all market caps.
Companies of different sizes come with their own
set of advantages and disadvantages. Depending on the market outlook and
current scenario, fund managers can invest in companies that are better suited
to fulfill the investment needs of their investors.
The flexibility of flexi cap funds to invest in
companies irrespective of the size is a great benefit for investors. For a
risk-averse investor, flexi cap fund is a wise choice, as there is no mandatory
percentage of allocation to each cap. Besides, a diversified investment in
large cap companies may reduce or counterbalance the risk often associated with
mid and large cap companies.
What about the existing multi cap funds?
SEBI has provided the option to fund houses for
converting an existing scheme into a Flexi Cap Scheme. It can simply be a
change in the scheme category or with changes in their fundamental attributes.
However, Mutual Funds may also choose not to
convert to flexi cap fund as they deem fit. They may also convert these funds
into another fund category. In both these cases, their status will remain the
same and Mutual Fund House will have to followthe norms and regulations of that
scheme category.
What should investors do?
As fund managers can invest in a flexi cap as per
their market outlook, it can be an ideal investment option for risk-averse
investors. Many mutual fund houses may convert their multi cap schemes to flexi
cap fund and continue operating as earlier.
If a fund house has not converted their multi cap
fund scheme to flexi cap scheme, investors need to tread carefully as your
allocation to mid-cap stocks and small-cap stocks might increase. Until any
official announcement from your fund house, you can wait and invest
conservatively in the fund.
You can talk to us to know more.
This blog is purely for educational purpose and not
to be treated as an personal advice. Mutual fund investments are subject to
market risks, Read all scheme related documents carefully.
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