Flexi Cap Fund: New equity mutual fund category introduced – What should investors do

In order to give more flexibility to the mutual funds and taking into account the recommendations of Mutual Fund Advisory Committee (MFAC), SEBI has allowed mutual fund houses to launch a new category named ‘Flexi Cap Fund’ under Equity Schemes. As per SEBI, the Flexi Cap Fund will be an open-ended dynamic equity scheme investing across large-cap, mid-cap, small-cap stocks. The minimum investment in equity and equity-related instruments in the Flexi Cap Fund has to be 65 per cent of total assets.

“This is a very good decision by the regulator in the interest of investors who want complete flexibility in the ownership of companies across market cap buckets. Investors would rely more on the fund managers capabilities and decisions to decide market cap bias. This also would give flexibility to managers to make investment decisions basis their conviction on the companies irrespective of their market caps,” says Akhil Chaturvedi – Associate Director & Head of Sales, Motilal Oswal Asset Management Company.

For easy identification by investors and in order to bring uniformity in names of schemes for a particular category across Mutual Funds, the scheme name shall be the same as the scheme category. The AMC will have to ensure that a suitable benchmark is adopted for the Flexi Cap Fund.

Mutual Funds have the option to convert an existing scheme into a Flexi Cap Fund. “Since this is a new category which is getting created, most multicap funds may get their schemes reclassified in to flexi cap category. Further, multicap category is an additional option available to managers as product option which will be managed as per market cap ceilings prescribed by SEBI,” adds Chaturvedi.

Although investors have a new category to choose from, the existing category of multi-cap fund also serves almost the same purpose. The role of the fund manager will be crucial in the performance of schemes in Flexi Cap Fund category. It remains to be seen if existing schemes are converted into Flexi Cap Fund or new funds are launched by the fund houses. No matter which category you choose, consider the long term performance before deciding to invest.

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