What are Flexi Cap Funds: Definition, Features and Investment Benefits?

IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER. THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR. 

In an uncertain world, where markets constantly shift gears, investors look for options that offer flexibility, between the bulls and the bears. A flexi cap fund is one such option, that offers flexibility, diversification, and growth --all in one. It allows investors to tap into the opportunities of large, mid, and small-cap companies—without being locked into a specific segment.  

Wondering what is Flexi Cap Fund, how it works, or if it’s the right fit for your goals? Don't fret, in this blog, we break down the meaning of Flexi Cap Funds, explore their features, benefits, tax implications, and help you decide whether they align with financial objectives. 

What is a Flexi Cap Fund? 

A flexi cap fund is an open-ended equity mutual fund that invests across large-cap, mid-cap, and small-cap stocks. Unlike multi-cap funds (which must allocate minimum fixed percentages to each segment), flexi cap funds provide freedom to fund managers to allocate funds dynamically, depending on market opportunities. 

In other words, when someone asks, what are flexi cap funds, the answer lies in their name—flexibility in market capitalisation. This flexibility helps the fund adapt to different market cycles and reduce risk through diversification. 

How Do Flexi Cap Funds Work? 

Let’s take a simple walkthrough. When you invest in a Flexi Cap Fund: 

1. Your money is pooled with other investors’ funds. 
2. The fund manager evaluates market conditions and identifies promising opportunities in large, mid, or small-cap stocks. 
3. There’s no rigid rule on how much must go into each cap segment. The manager may allocate heavily to large caps in volatile times or mid/small caps during growth periods. 
4. The aim is to deliver long-term capital appreciation while balancing risk. 

Since flexi cap funds are actively managed, the fund manager’s skill plays a big role in performance. Returns are generated based on both stock selection and allocation strategy. This makes it a preferred choice for investors seeking professional expertise, adaptability, and diversification. 

Features of a Flexi Cap Fund 

Flexi cap funds come with unique characteristics that make them appealing: 

1. Flexibility in Asset Allocation: Unlike most mutual funds that focus on one segment, Flexi Cap Funds allow dynamic allocation across market caps. This adaptability makes them responsive to changing market scenarios. 

2. Diversification Across Market Segments: By investing in companies of different sizes, these funds spread the risk. A downturn in small-cap stocks might be balanced by stability in large-caps, leading to smoother returns over time. 

3. Sector-Wide Exposure: The flexibility also applies to sectors—technology, healthcare, banking, or FMCG—the fund manager can explore opportunities wherever they arise. 

4. Active Management 

These funds are actively managed, meaning the fund manager uses research and market insight to make timely decisions, aiming for better-than-average returns. 

Benefits of Flexi Cap Funds 

Flexi Cap Funds offer a bouquet of advantages, especially for investors seeking long-term growth: 

1. Adaptability to Market Cycles: In bullish markets, managers might shift focus to small or mid-caps for higher gains. In uncertain times, they may prioritise safer large-cap stocks. This dynamic approach protects and grows your investment. 

2. Potential for Higher Returns: Mid and small-cap stocks often offer better growth potential. By accessing these alongside large caps, Flexi cap funds strike a balance between safety and opportunity. 

3. Reduced Volatility: Diversification across market segments and sectors cushions the fund from sharp market swings. 

4. Expert Handling: As these funds are actively managed, you benefit from the fund manager’s strategy, analysis, and experience—making it ideal for those who prefer hands-off investing. 

Who Should Invest in Flexi Cap Funds? 

Flexi Cap Funds suit a wide range of investors, but they may not be right for everyone. 

Ideal for: 

• Investors seeking long-term wealth creation. 
• Those who prefer diversified equity exposure without monitoring market trends closely. 
• Moderate to high-risk takers who want professional fund management. 

Not ideal for: 

• Investors needing fixed returns or short-term liquidity. 
• Those with very low risk tolerance. 

Flexi Cap Funds work best when paired with long-term goals and a stable investment horizon. 

Do you think a Flexi cap fund can work for you? You can invest in Bandhan Life's Flexi Cap Fund through Bandhan Life iInvest Advantage Plan.  

Tax Rules for Flexi Cap Funds 

Understanding taxes helps you plan smarter. Here’s how capital gains are taxed: 

• Short-Term Capital Gains (STCG): If you sell units within 12 months, gains are taxed at 20%. 
• Long-Term Capital Gains (LTCG): If sold after 12 months, gains exceeding ₹1.25 lakh in a financial year are taxed at 12.5%, while the first ₹1.25 lakh is tax-free. 

Tip: Holding Flexi Cap Funds for the long term not only supports compounding but also keeps your tax liability lower. 

Should You Invest in Flexi Cap Funds? 

Here’s a summary to help you decide: 

 Advantages: 

• Dynamic investment strategy 
• Diversification across market caps and sectors 
• Professionally managed 
• Good for long-term wealth building 
• Tax-efficient% if held long enough 

Considerations: 

• Returns aren’t guaranteed (market-linked) 
• Fund performance depends heavily on the manager’s decisions 
• Short-term market volatility may impact returns 

In conclusion, if you want a flexible, well-diversified wealth creation option without tracking the market every day, Flexi Cap Funds could be a good addition to your portfolio. They also complement structured plans like our iInvest Advantage Plan, or ULIPs that offer both protection and growth. 

Frequently Asked Questions 

1. Which is better: Multicap or Flexi Cap? 

Flexi Cap Funds offer more flexibility. While Multi Cap Funds must invest a minimum of 25% in each cap (large, mid, small), Flexi Cap Funds allow dynamic allocation based on market trends. This makes Flexi Cap Funds more adaptable, especially in volatile markets. 

2. What is the average return on a Flexi Cap Fund? 

Returns vary by fund and time frame. Historically, well-performing Flexi Cap Funds have delivered 10–15% average annual returns** over the long term. Always review past performance but remember it doesn’t guarantee future results. 

3. Is there a lock-in period for a Flexi Cap Fund? 

Yes, if you invest in Flexi Cap Funds via ULIPs, there will be a five-year lock-in period. This means you won’t be able to withdraw money before five years.   

4. What amount is allocated to equity in Flexi Cap Funds? 

Flexi Cap Funds must invest a minimum of 65% in equity to get tax benefits.However, different flexi cap funds may have different minimum equity requirement based on their product filings.