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Financial Term of the week- Flexi-cap mutual funds

For starters, let us first understand what ‘market cap’ or market capitalisation means. Market capitalisation is the total value of all the outstanding shares of a company. For example, if a company has 2,00,000 outstanding shares selling at Rs 10 per share, then the total market capitalisation of the company will be Rs 20,00,000. On the basis of market cap, Securities & Exchange Board of India (SEBI) has categorized various companies for investment by Mutual Funds as below-

The mutual funds schemes that primarily invest in large-cap companies are called large-cap funds, the ones investing primarily in mid-cap companies are called mid-cap funds, and so on. However, in November’20 SEBI introduced a new category of mutual fund scheme- Flexi-cap funds, wherein the fund needs to have minimum 65% in equity.

What is Flexi-cap fund?

Flexi-cap fund, by definition, needs to have at least 65% of their assets allocated towards equity or equity-related securities. They have been introduced to provide flexibility in investment across all market caps. So, in effect, they are now what the multi-caps used to be before September’20. The multi-caps will follow the minimum 25:25:25 rule from now on.

SEBI has also allowed fund houses to convert their existing multi-cap funds to flexi-cap category after complying with the respective provisions of SEBI Mutual Fund Regulations. This gives the fund houses room to not have to change the portfolios of their existing multi-cap funds. They can just convert them to flexi-cap after complying with rules and regulations as prescribed by SEBI.

Flexi-cap provides the fund manager with the flexibility to shift a bulk of capital from one company to the other depending on the market scenario. This can prove beneficial for the investors who do not have the expertise in rebalancing their portfolio, each time the market changes.

Who should invest in Flexi-cap funds?

If you are looking at long term goals like retirement or children’s education/ marriage, then you may want to consider Flexi cap funds. Secondly, if you have the risk appetite to tolerate volatility & are looking to diversify across various Market caps, flexi-caps can be considered.

Secondly, if you have the risk appetite to tolerate volatility & are looking to diversify across various Market caps, flexi-caps can be considered.


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Disclaimer:
This is an investor education and awareness initiative by Nippon India Mutual Fund.
Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit mf.nipponindiaim.com/investoreducation/what-to-know-when-investing This is an investor education and awareness initiative by Nippon India Mutual Fund.

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