In 2021-22, a net inflow of Rs 35,877 crore was recorded in the newly created Flexi-cap category, which requires mutual funds to invest at least 65% of their corpus in equities without any investment constraints in large, mid or small cap stocks. According to data collected from the Association of Mutual Funds in India (Amfi), it was the largest net inflow among share classes.
According to Morningstar India, since capital markets regulator Sebi created the Flexi-cap category in November 2020, many asset management firms (AMCs) that had realigned their existing funds into the Flexi-cap category have launched multi-cap funds, while those AMCs that had kept their funds in the multi-cap category launched Flexi-cap funds.
What are Flexi-cap funds?
Flexi-cap funds are funds invested in companies with a range of market capitalizations, including various stocks such as large, mid and small cap stocks. All large, mid and small capitalization companies are represented in these funds.
An open-cap fund is a fund that allows investors to diversify their portfolio by investing in companies with other varying market capitalizations, thereby reducing risk and volatility. Diversified equity funds or multicap funds are other names for them.
Unlike mid cap and small cap funds which invest in shares according to their market capitalization. Flexi-cap funds can invest in any company, regardless of market capitalization. The fund manager assesses the total growth potential of many companies, regardless of size, and allocates funds to various market segments and companies.
Factors to consider in Flexi-cap funds.
Flexi-cap funds have a diversified portfolio, which allows the fund to balance risk and return. These funds also offer consistent returns, especially during periods of market weakness.
In addition, the fund manager has the flexibility to periodically review the fund’s allocation and swap between sectors based on performance.
For example, suppose a fund manager discovers that a market segment in which he has invested has become unattractive over time. In this case, the fund manager may move the allocation to a section that has recently performed better. This offers investors the opportunity to not only invest in the best performing stocks, but also to exit those that are not performing well.
Market capitalization is a key factor when it comes to selecting companies to invest in through mutual fund houses. Indeed, market capitalization represents the size of a company, but it also shows other factors considered by investors, such as the company’s track record, growth potential and risk.
Flexi-cap funds received a net inflow of Rs 2,478 crore in the three months ending June 2021, Rs 18,258 crore in the quarter ending September 2021, Rs 6,191 crore in the quarter ending in December 2021 and Rs 8,950 crore in the three months ending March 2022, out of a total of Rs 35,877 crore.
Large-cap funds recorded a net inflow of Rs 13,569 crore for the full financial year 2021-22, while mid-cap funds received Rs 16,308 crore and small-cap funds received Rs 10 145 crore.
Apart from this, the multi-cap fund category recorded a net inflow of Rs 28,095 crore during the period under review, while the sector segment recorded a net inflow of Rs 27,182 crore.
Through further realignment of funds and the launch of new funds, the Flexi-cap category amassed assets totaling Rs 2,25,430 crore by the end of March 2022.
A news panel reported that “the Flexi-cap category now accounts for 17% of total open-ended equity fund assets.”
It had managed to outperform assets in the large-cap category and gain first place in terms of largest assets under management (AUM), but fell back to second place in the quarter ending March 2022.