If you’ve been exploring mutual fund options lately, you’ve probably come across flexicap funds. These relatively newer category additions to the Indian mutual fund landscape have been gaining attention since SEBI’s 2021 reclassification. But what exactly are they, and more importantly, should they find a place in your portfolio?
What Are Flexicap Funds?
Flexicap funds are equity mutual funds that have the freedom to invest across companies of all size - large-cap, mid-cap, and small-cap without any fixed allocation requirements. Unlike multicap funds (which must invest at least 25% in each category) or large-cap funds (minimum 80% in large-caps), flexicap fund managers can dynamically shift their portfolio composition based on market conditions and opportunities.
This flexibility is their biggest strength. When large-caps look attractive, the fund can load up on them. When mid or small-caps present better growth prospects, the manager can pivot accordingly.
In India’s dynamic markets, the ability to move between market caps is valuable. Fund managers can capitalize on emerging opportunities without category constraints. For investors who want equity exposure but don’t want to manage multiple funds across different market cap categories, a flexicap fund offers a convenient all-in-one option. Many flexicap funds (previously categorized as diversified equity funds) have delivered strong long-term returns, though past performance doesn’t guarantee future results.
Points to Consider
Higher Risk Than Pure Large-Caps: The flexibility to invest in mid and small-caps means potentially higher volatility compared to large-cap focused funds.
Expense Ratios: Compare expense ratios across funds, as higher costs can eat into your returns over time.
Your Risk Profile: If you’re conservative and prefer stability, a flexicap fund’s potential mid and small-cap exposure might make you uncomfortable during market downturns.
To help you understand how these funds perform in practice, here are some of the top flexicap funds in India based on recent performance:
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Parag Parikh Flexi Cap Fund
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JM Flexicap Fund
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Kotak Flexicap Fund
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HDFC Flexi Cap Fund
Flexicap funds can be an excellent core equity holding for investors with moderate to high risk appetite and a long investment horizon of at least five to seven years. They work particularly well for those who want diversified equity exposure without the hassle of rebalancing across multiple funds.
However, they’re not necessarily better than a well-constructed portfolio of large-cap, mid-cap, and small-cap funds if you’re willing to do the work yourself. And if you’re extremely risk-averse, sticking with predominantly large-cap funds might help you sleep better at night.
The key is understanding that flexicap funds are tools, not magic bullets. Choose funds with consistent long-term track records, reasonable expense ratios, and fund managers with proven ability to navigate different market conditions. And as always, align your choice with your financial goals, investment timeline, and comfort with risk.
Note: Past performance doesn’t guarantee future results. This blog is for informational purposes only and should not be considered financial advice.