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Best Flexi-cap Mutual Funds To Invest In India With Nivesh
In September 2020, SEBI (Securities and Exchange Board of India) came up with a new rule which stated that by the end of January 2021, all Multi-cap funds must invest at least 25% of their investors’ funds across Large-cap, Mid-cap, and Small-cap companies. This rule forced the fund managers of Multi-cap funds to park a large chunk of their money in Mid-cap and Small-cap companies; until then, they were investing a significant amount only in Large-cap companies. However, after further deliberations, in November 2020, SEBI decided to start a new category of Mutual Funds called Flexi-cap Funds. With this, SEBI also gave liberty to the fund houses to convert their existing Multi-cap funds to Flexi-cap if they wish to do so.
Features of Flexi-cap Funds
A Flexi-cap Mutual Fund is an open-ended scheme that has the flexibility to invest in companies across different market capitalizations. The only condition that a Flexi-cap Fund needs to satisfy is investing at least 65% of its funds into Indian equities. The fund managers can invest the remaining 35% of their funds in debt instruments or keep it as cash or cash equivalents. A Flexi-cap Fund is allowed to invest in international equities as well. In short, the fund managers get liberty in asset allocation.
As Flexi-cap Funds can invest across market caps, they fall under diversified equity funds. Thus, they are considered to be less risky than mutual funds of many other categories. At times a higher level of diversification can deliver outstanding value to the investors.
Unlike many other categories of mutual funds, there are no restrictions on the number of stocks that a Flexi-cap Fund can invest in at a time. If you check the portfolio of various Flexi-cap Funds, you can see there exist certain funds which maintain a diversified portfolio of more than 50 companies while there exist a few that invest in less than 30 companies. For instance, Aditya Birla Sun Life Flexi-cap Fund invests in about 65 stocks, while Parag Parikh Flexi-cap Fund only invests in 28 stocks.
Benefits of Investing in Flexi-cap Funds
The structure of Flexi-cap Funds provides flexibility to the fund manager to shift the investment across market capitalization depending on market conditions. This is advantageous for the fund manager as they can decide the allocation as per their expectation of future trends. For example, in the case of Multi-cap Funds, there is a restriction to invest a minimum 25% in Small-cap stocks. However, if the valuations of Small-cap stocks are high, then the fund manager of a Multi-cap Fund will have to remain invested in his Small-cap stock holding. While the fund manager of Flexi-cap Fund has the flexibility to shift the investment from Small-cap stocks to Large-cap stocks or to Mid-cap stocks.
The market capitalization of a stock is an important factor for the fund manager while making a decision to invest. Market capitalization reflects the size of the company. Flexibility to shift allocation due to shifts in market conditions provides an opportunity to the fund manager to better manage the fund.
Who Should Invest in Flexi-cap Funds
Flexi-cap Funds are specifically suitable to any person who is looking at building wealth over the long run through systematic investments:
- Investors with a high risk tolerance.
- Investors who have a long-term investment horizon, preferably more than five years. Flexi-cap Funds are an ideal place to invest for your long-term goals, such as retirement, child education, etc.
- Investors who look for diversification in their portfolios.
- If you’re planning to invest only in one fund.
- Investors who prefer the growth option rather than the dividend option. Many fund houses offer only the growth option in their Flexi-cap Fund. Hence, Flexi-cap Funds may not suit well for those who look for a periodic income from mutual funds.
- Investors who seek inflation-beating returns in the long haul.
- Last but not least, for all those investors who can cope with the market volatility.
Factors to Consider While Investing in Flexi-cap Funds
Before deciding on a Flexi-cap Fund, check the following factors:
- Cost: Fund houses incur some expenses in running a Mutual Fund. These expenses are expressed as a percentage of the Asset Under Management (AUM) and known as the expense ratio. Fund houses publish NAVs of Flexi-cap Funds after deducting expenses. Hence, buy a Flexi-cap Fund that has a lower expense ratio.
- Risk: Risk and returns go hand in hand. Before investing in a Flexi-cap Fund, check the risks associated with the fund, and then check whether it’s in line with your risk tolerance or not. Never take more risk than you can handle.
- Fund manager’s experience: The experience of the fund manager plays a vital role in the returns. Therefore, check the performance of the fund that the manager handled previously. It can give a clear idea of how good she/he is in managing the fund.
- Track record of the fund house: When it comes to Mutual Funds, try to go for funds offered by reputed players rather than the new ones who have no track record.
Taxation Benefits of Flexi-cap Funds
Flexi-cap Funds invest a large chunk of their money in equity or equity-related instruments. Therefore, the gains from these funds are taxed in the same way as Equity Mutual Funds.
If you redeem your investment in a Flexi-cap Fund before completing 12 months from the date of purchase, then your profits will be categorized as short-term capital gains and will be taxed at a flat rate of 15%.
On the other hand, if you’re taking profits after one year from the date of purchase, your profits will fall under long-term capital gains. In a financial year, if your long-term capital gains do not exceed Rs. 1 Lakh, then you’re eligible to get a tax exemption, and if it exceeds that, then the excess amount will be taxed at 10% without indexation.
Suppose you made a long-term capital gain of Rs. 1.50 Lakhs from an Equity Mutual Fund in a financial year. Here, Rs. 1 Lakh will be exempted from income tax and the remaining Rs. 50,000 will be taxed at 10%.
Minimum investment
The minimum investments in Flexi-cap Funds depend upon scheme-to-scheme. It may vary from Rs. 500 to Rs. 5,000.
Best mode to invest
The best mode to invest in Flexi-cap Funds is through Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP). As markets are volatile, for anyone looking to invest a large amount, it is important not to invest the entire amount in one go. Investing in a systematic manner helps in averaging the cost of purchase by investing at different points of time. This process helps in generating a superior return as compared to a single lump sum investment.
Frequently Asked Questions (FAQs)
1. Are Flexi-cap Funds High Risk?
Flexi-cap Funds are diversified equity funds investing across various market caps making it relatively less risky than the Small-cap or Mid-cap Funds. However, the investment should be in a systematic manner through SIP or STP mode and the investment time horizon should be more than 5 years.
2. What Kind of Returns can I Earn from Flexi-cap Funds?
It is impossible for anyone to predict future returns in equity funds as the markets remain volatile. The returns are also dependent on the stocks being selected by the particular fund manager. However, given past returns, one can expect a return in the range of 10% – 15% pa if invested for more than 5 years.
3. How Long Should I Stay Invested in Flexi-cap Mutual Funds?
If you are planning to invest in Flexi-cap Funds, you should have a long-term investment horizon, preferably more than five years.
4. What is the Minimum Investment Required in Flexi-cap Funds?
You can start investing in Flexi-cap Funds with as low as Rs. 500.
5. How to Evaluate the Best Flexi-cap Fund?
There are multiple subjective and objective parameters to consider while selecting the best Flexi-cap Fund. These could include fund manager track record, return generated versus risk assumed by the fund manager, number of stocks in the fund, average P/E of the fund, etc. For the ease of investors, Nivesh provides a ready list of the best Flexi-cap Funds curated by the research team.
6. Is There any Tax on Flexi-cap Funds?
Yes, Flexi-cap Funds are taxed as per the time of investment and redemption.
7. How to Invest in Flexi-cap Funds Through Nivesh?
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
