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Equity investing often begins with a basic question: Should capital be allocated to large caps, mid caps, or small caps? Each segment behaves differently across market cycles, making allocation decisions complex and often timing-dependent. For investors deploying meaningful capital, this decision becomes even more critical because allocation mistakes can significantly impact long-term returns.
This is where flexi cap funds emerge as a strategic solution. They offer a dynamic approach to equity investing by allowing fund managers to allocate across market capitalisations based on valuations, liquidity, and macroeconomic conditions.
Let’s explore how flexi cap funds work and what investors must evaluate before committing capital.
What is a Flexi Cap Fund and How it Works?
A flexi cap fund is an open-ended equity mutual fund that invests across large cap, mid cap, and small cap stocks without fixed allocation limits. Securities and Exchange Board of India (SEBI) mandates that these funds must maintain at least 65% exposure to equities, but beyond that, allocation remains completely flexible.
This flexibility allows fund managers to dynamically shift capital depending on:
Market valuations
Sector performance
Economic cycles
Liquidity conditions
Unlike multi-cap funds, which must allocate at least 25% to each market capitalisation segment, flexi cap funds do not have prescribed minimum allocations across segments. This allows fund managers to adjust exposure based on their investment approach and market conditions within the broader regulatory framework.
Why Flexi Cap Funds Exist in the Indian Market
Flexi cap mutual funds were formally introduced by SEBI in 2020 to provide greater allocation freedom to fund manager… Read More
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