What are Flexi Cap Mutual Funds

A flexi-cap fund is a type of mutual fund that is not restricted to investing in companies with a predetermined market capitalisation. Read to know more.
4 mins read

Flexi cap mutual funds are a type of equity mutual fund that invests in a diversified portfolio of equity and equity-related securities across market capitalisations. They offer investors the flexibility to invest in companies of all sizes and across sectors. Flexi cap mutual funds are ideal for investors who want to invest in equities but do not want to be restricted by market capitalisation or sectoral allocation. In this article, we will discuss the key features of Flexi Cap mutual funds, types of flexi Cap mutual funds, who should opt to invest in them, taxation of flexi cap mutual funds  and more.

What are flexi cap mutual funds?

Flexi cap funds invest in companies spanning large-cap, mid-cap, and small-cap stocks, offering diversification across market capitalisation. These funds, also known as diversified equity or multi-cap funds, mitigate risk and volatility by spreading investments. Unlike mid or small-cap funds, flexi-cap funds are not restricted by market capitalisation, allowing investment in any company. Fund managers evaluate growth potential across all sizes, distributing investments across diverse market segments. This approach ensures flexibility and adaptability to market conditions, enhancing the potential for long-term returns.

Features of flexi cap mutual funds

Listed below are some features of flexi cap mutual funds:

  • Diversification: Flexi Cap mutual funds provide diversification to investors by investing in a diversified portfolio of equity and equity-related securities across market capitalisations and sectors. This diversification helps mitigate risk and maximise returns. Flexi Cap mutual funds offer investors the flexibility to invest in companies of all sizes, including large-cap, mid-cap, and small-cap companies. By investing in Flexi Cap mutual funds, investors can benefit from professional management, and diversification.
  • Sectoral Allocation: Flexi Cap mutual funds have the flexibility to invest in companies across sectors. This helps reduce sector-specific risks and ensures that the portfolio is not overly reliant on any one sector.
  • Market-Cycle Adaptability: These funds have the flexibility to adjust their holdings based on market conditions. In bullish phases, they may tilt towards mid and small caps, and in bearish markets, they can increase exposure to large caps for stability.
  • Professional Management: Flexi Cap mutual funds are managed by professional fund managers who have expertise in selecting securities that align with the fund’s investment objectives. By investing in Flexi Cap mutual funds, investors can benefit from the expertise of these fund managers.
  • Potential for High Returns and High Risk Tolerance: Their adaptability allows Flexi Cap funds to target stocks with strong growth potential, potentially resulting in higher returns. Also, flexi Cap funds are suitable for investors with high-risk appetite who seek long-term capital appreciation while managing risk exposure.

Read more about: Risks in mutual funds

Frequently asked questions

Which is better, flexi-cap or small-cap?

Flexi-cap funds offer diversification across large, mid, and small-cap companies, potentially for lower risk than pure small-cap funds. However, returns might also be lower.

Is it safe to invest in a flexi-cap fund?

Flexi-cap funds are equity funds, so they carry inherent market risks. But diversification across market caps can help reduce volatility compared to pure small-cap funds.

What is the difference between large-cap and flexi-cap?

Large-cap funds invest in established, big companies. Flexi-cap funds have the flexibility to invest across all company sizes, offering diversification potential.

Disadvantages of flexi-cap funds?

Flexi-cap funds might underperform pure large-cap funds during strong bull markets, and their returns might be less volatile but potentially lower than pure small-cap funds.

Are flexi-cap funds good for beginners?

Flexi-cap funds can be a good option for beginners seeking long-term growth with some built-in diversification. Consider your risk tolerance and investment goals.

Investment horizon for flexi-cap funds?

A long-term horizon (ideally 7+ years) is recommended for flexi-cap funds to ride out market fluctuations and potentially benefit from growth across sectors.

Who should invest in flexi-cap funds?

Flexi-cap funds can suit investors seeking growth potential with some diversification. Consider your risk tolerance and investment goals.

Are flexi-cap funds tax-free?

No, flexi-cap funds are taxed like other equity funds. Capital gains are taxable depending on the holding period.

How to choose a flexi-cap fund?

Research fund performance, expense ratio, investment strategy, and fund manager's track record. Consider your risk profile and investment goals.

Which is better, flexi cap or small-cap?

Flexi cap funds offer a broader investment scope across market capitalisations, including small-cap stocks, while small-cap funds focus solely on small-cap stocks, making the choice dependent on risk tolerance and investment objectives.

Is it safe to invest in a flexi cap fund?

Investing in a flexi cap fund can be relatively safe for investors with a diversified portfolio and a long-term investment horizon, though returns are subject to market fluctuations.

What is the difference between large-cap and flexi cap?

The primary difference lies in investment focus: large-cap funds predominantly invest in large-cap stocks, whereas flexi cap funds have the flexibility to invest across market caps, providing a broader investment universe.

What are the disadvantages of flexi cap funds?

Disadvantages of flexi cap funds include higher volatility due to exposure across market caps, potential underperformance during certain market cycles, and the need for active management.

Is a flexi cap fund good for beginners?

Flexi cap funds can be suitable for beginners with a long-term investment horizon and willingness to tolerate market volatility, though they may require guidance on risk management and portfolio diversification.

How long should I invest in a flexi cap fund?

It is advisable to invest in flexi cap funds for a long-term horizon, ideally five years or more, to potentially ride out market fluctuations and benefit from compounding returns.

Who should invest in a flexi cap fund?

Investors seeking diversification, growth potential across market capitalisations, and flexibility in portfolio management may find Flexi Cap funds suitable for their investment goals.

Is a flexi cap fund tax-free?

Flexi cap funds are subject to taxation on capital gains based on the holding period, with short-term gains taxed at applicable income tax rates and long-term gains taxed at a lower rate with indexation benefit.

How do I choose a flexi cap fund?

When choosing a flexi cap fund, consider factors such as fund performance track record, investment philosophy, fund manager expertise, expense ratio, and alignment with your risk profile and investment objectives.

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