Flexicap schemes find favour among investors amid broad market rally

Category now second biggest after large-cap funds

The newly-created flexicap category is gaining popularity among investors. The data from Association of Mutual Funds in India (Amfi) shows that that equity scheme category has received net inflows of over Rs 2,700 crore in the past three months.

Market participants say that investors are using flexicap schemes to spread their bets across the investing universe as the rally has become more broad-based.

“Flexi cap is the most attractive category in the equity segment. Investors who want an exposure to the broader markets are looking at flexi cap funds. Fund managers have a freedom to invest across market capitalization depending on their market outlook,” said G Pradeepkumar, CEO Union AMC.

The Securities and Exchange Board of India (Sebi) had introduced the flexicap category in November last year after modifying characteristics of multicap schemes in September 2020.

Flexi cap funds permit the fund managers to invest across the large-, mid- and small-cap buckets without any minimum threshold. Multicap schemes are mandated to invest at least 25 percent of the corpus in large, mid, and small cap stocks each.

Last month, flexi cap funds saw net inflows of Rs 1,130 crore while net assets under management (AUM) for the category rose to Rs 1.71 trillion—second most in the equity category after ‘large cap’.

In May, the benchmark Sensex posted its biggest monthly gain of 2021, surging 6.5 per cent. The broader markets outperformed with the BSE Smallcap gaining 8.9 per cent and the BSE Midcap soaring 7.1 per cent.

In January and February, flexi cap funds had seen net outflows of Rs 10,400 crore as many schemes were changed from ‘multicap’ to ‘flexi cap’ funds and investors had an option to exit without paying any exit load.

Ajit Menon, CEO, PGIM India MF says that “In my discussion with several distributors and advisors they tell me that in case investors find it difficult to decide on which category to invest—they suggest investors to invest in flexi cap funds and balanced advantage funds.”

In the past one-year equity schemes have been able to generate strong returns on the back of surge in the equity markets. In the last one-year, large cap funds have given average returns of 57.34 per cent, while mid cap and small cap funds have given average returns of 79 per cent and 109 per cent respectively.

Market participants say that several of the investors who do not want to invest in the mid cap or small cap category now are looking to invest in flexi cap funds.  Recently, ICICI Prudential Mutual Fund had announced the launch of ICICI Prudential Flexicap Fund. The fund aims to follow a mix of top-down and bottom-up approach to identify opportunities in large, mid and small cap space respectively.

Nimesh Shah, MD & CEO, ICICI Prudential AMC said, “Flexi cap is one category which is the most flexible among the equity scheme offerings. The ICICI Prudential Flexicap Fund has the flexibility to invest across large, mid and small cap space without any restriction. We will be guided by our in-house market cap allocation model to provide direction and help ascertain the right allocation to various market caps.”