With the name indicating flexibility, flexi-cap funds indeed offer you the agility to move between stocks of companies with varied market capitalisation, namely large, mid and small caps. Due to this dynamicity, these funds are hot favourites of investors who are game for long-term investments but want significant returns from their portfolios. However, your risk tolerance ability and ultimate objective of investing should never be overlooked or ignored over only returns.
Understanding the Flexi-Cap Funds
It is a dynamic, equity-oriented scheme in which the fund manager can invest 65% of the assets under management in equity or equity-related securities. Since the SEBI rule does not restrict the allocation of any fixed amount to small, mid, and large caps, the scheme can move dynamically across sectors, capitalisation, and geography to take advantage of market movements to minimise risk and, at the same time, provide optimal returns. The major benefit of flexi-caps over large small and mid-cap funds is diversification. While flexi-cap schemes have the freedom to reallocate funds between large, mid and small-cap stocks, the other three schemes concentrate on large, mid and small caps respectively.
Benefits of Flexi-cap
The three-pronged benefits of flexi-cap as is quite clear from the assessment are:
- Diversification in different market capitalisations can balance risk and return in the long term.
- Fund managers can choose to move between sectors according to market trends and conditions.
- Capability to generate higher returns due to exposure to stocks of smaller companies.
Defining Investment Goals and Risk Tolerances in Flexi-Caps
“To each his own”. Investment goals and risk tolerances are just that: extremely personal.
Your investment goal may be short-term or long-term depending on the purpose of your wealth creation.
Short-term objectives include emergency fund requirements for house maintenance, medical treatments, international trips, or multiple domestic trips. Hence, the tenure of the investment ranges from months to two years.
Long-term goals range from planning your child’s higher education and wedding to your own pension and old age healthcare planning.
Flexi-caps are best suited for long-term financial objectives as they carry moderate to high risk.
Investors are also categorised based on risk tolerance or risk appetites.
You will be considered a conservative investor if you are risk-averse and always tread cautiously. For you, the ideal asset class ideal for investments would be Public Provident Funds, Post office investments and even risk-free fixed deposits as your primary objective would be protecting your invested capital.
Moderate investors are eager to save their capital as well as earn a higher return than their conservative counterparts. Hence a small part of their portfolio may be allocated to flexi-cap funds. You will be able to take advantage of market fluctuations while you keep your majority of capital safe.
An aggressive investor with a high risk appetite, values returns over capital protection. You will be an ideal flexi-cap investor if you belong to this category. Even with high market volatility, you will be generating a significant return.
Analysing Past Performance and Returns: Flexi-cap Perspective
Evaluating past performances and returns will give you a basis for choosing the right fund:
- Reviewing the Compounded Annual Growth Rate(CAGR) of flexi cap funds over 3-year, 5-year and 10-year periods is a conservative approach to compare and assess mutual fund returns. But it gives a comparatively true picture of the fund performance than an absolute return.
- By comparing the monthly performance of a flexi-cap fund with the relative benchmark indices (NIFTY 500 or BSE 500), you can check the trends and consistency in the fund performance.
- Consistency of such funds under varied market conditions is easily identifiable by returns across 3-year and 5-year periods.
Portfolio Composition and Sector Allocations of Flexi-caps
Due to the freedom of allocation, stocks belonging to large-cap, mid-cap and small-cap companies can all be incorporated in flex-cap funds, minimising your risk further. Besides, if your investments are not too concentrated on one sector the chances of losses are reduced considerably. In case one performs low, you can shift to another for a better return. Since flexi-caps integrate the stability of large-cap stocks and growth prospects of mid and small-caps, it is a perfect combination of moderate risk and return in the long run.
Assess the Fund Manager and AMC Reputation (s)
Asset allocation is the primary duty of the fund manager especially in flexi-cap funds. Hence his experience, records of return generation and consistency in fluctuating market conditions are vital factors that influence your return. A good fund manager will offer consistent returns in the long run, even under varied market conditions.
It is pivotal to review the reliability and transparency of the Asset Management Companies before investing. The details of an AMC like client feedback, its strong management, published report analysis, industry ratings and objectives of schemes assure an investor of its dependability and accountability.
The Importance of Expense Ratio and Exit Load in Flexi-Caps
As the name suggests this ratio is an indicator of expenses borne by the AMCs to manage the fund. It covers the management and daily operational costs. Hence, it may be higher in more actively managed flexi-cap schemes. Hence, comparing different funds based on expense ratio is a good approach to choosing the right fund.
It is prudent to check any hidden costs or exit fees that are charged by the specific fund as it can eat into your net profit. If you want to exit from flexi-cap funds before a specified time, an exit load may be charged that may impact your net returns.
SIP vs Lumpsum: Choosing the Right Mode of Investment in Flexi-Caps
A systematic Investment Plan is a disciplined way of investing a regular amount at a specific interval without the risk of timing the market. If followed while investing flexi-caps for a long tenure, it lowers your risk further even with high market volatility and can give you a significant return due to rupee cost averaging and compounding effect. For lumpsum investment, you need to check and enter the market at the right time to maximise the return, a good opportunity for high-risk individuals.
Consider investing in these three top flexi-cap funds in the mode that best suits your investment pattern, tenure and risk appetite.
The Top Flexi-Cap Picks for 2025 are :
| Fund Name | Asset Under Management (in Cr.) | 1-yr Return
(%) |
3-yr Return
(%) |
5-Yr Return
(%) |
| JM Flexicap Fund | 5338 | 1.33 | 28.52 | 27.56 |
| HDFC FlexiCap Fund | 66344 | 8.35 | 24.36 | 26.51 |
| Parag Parikh Flexicap Fund | 87539 | 12.51 | 23.77 | 25.49 |
Conclusion
Like any other market instrument, you will first need to understand risk and market conditions, compare returns, and check for the costs of investment in these schemes. But for a realistic return in flexi caps, one must stay invested for a long time to override market risks and create wealth.
