Flexi Cap Mutual Funds

A flexi cap fund is an open-ended equity mutual fund that has the freedom to invest across companies of any market capitalisation, large cap, mid cap, and small cap, without any fixed allocation mandate. This gives the fund manager the flexibility to shift the portfolio based on where the best risk-adjusted opportunities exist at any given time.

SEBI introduced the flexi cap fund category in November 2020 to allow fund managers more operational flexibility compared to the rigid allocation rules of multi-cap funds (which require minimum 25% each in large, mid, and small cap). In a flexi cap fund, the manager can be 80% large-cap when markets are volatile, and tilt toward mid and small caps when valuations are attractive.

The fund manager of a flexi cap fund continuously evaluates the market cycle and adjusts the large/mid/small cap split accordingly.

In a bull market with frothy mid-cap valuations, the manager may increase large-cap allocation for stability. In a market correction, they may increase mid and small-cap exposure to capture recovery upside.

This dynamic allocation is the core value proposition of flexi cap funds; it attempts to capture growth across the market cap spectrum while managing downside risk better than pure small-cap or mid-cap funds.

Flexi cap funds are classified as equity mutual funds for tax purposes (since >65% of the portfolio is in equities):

Annual tax harvesting of ₹1.25 lakh in LTCG is completely tax-free. NovaAI's tax harvest alerts automatically notify you when it's time to book and reinvest to maximise this exemption each financial year.