SEBI, the market regulator, launched a new kind of equity mutual fund scheme named 'Flexicap Fund' vide circular dated November 6, 2020. These are open-ended dynamic equity funds that invest in equities from big, mid, and small companies. A minimum of 65 percent of total assets will be invested in equities and equity-related products.
Fund managers in the Flexicap category have complete freedom to invest in businesses of any size. To gain from strong growth, fund managers might invest in high-growth, small-sized businesses. They seek businesses with excellent balance sheets, favourable return ratios, and positive cash flows.
Key advantages include:
• Fund managers are free to invest throughout the market capitalization spectrum.
• A well-diversified equities strategy with a "go-anywhere" attitude
• Ability to capitalise on opportunities throughout the market spectrum - regardless of market capitalization, industry, or style
• Aims to take advantage of investment possibilities across the board.
• Due to a diverse portfolio, the risk and return components are rather well balanced.
What distinguishes it from Multicap Funds?
Multi-cap funds must follow the 25-25-25 rule, which requires them to invest 25% in large-cap companies, 25% in mid-cap stocks, and 25% in small-cap stocks, placing minimum investment requirements across market cap sectors.
SEBI proposed a new category, "Flexi Cap Fund," to provide AMCs more freedom. This fund will be positioned as a dynamic equity fund with no limit or bias toward any market cap sector.
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