Flexi Cap: SEBI's Most Flexible Category
SEBI introduced the Flexi Cap category in 2020, requiring funds to maintain at least 65% in equities with no restriction on large/mid/small cap split. This replaced the old Multi Cap category which required mandatory 25% in each segment.
Why Flexi Cap Makes Sense
A skilled fund manager can:
- Increase large-cap exposure when valuations are stretched in mid/small caps
- Shift aggressively to mid caps when they offer superior risk-reward
- Hold international stocks (some flexi cap funds allow 10–15% overseas)
- Respond dynamically to economic cycle changes
The Risk: Manager Dependency
Unlike index funds, flexi cap performance is heavily dependent on the fund manager's skill, market view, and decision-making. If a star fund manager leaves, the fund's character can change significantly. Always track the fund manager tenure alongside performance.
Evaluating a Flexi Cap Fund
Look beyond raw returns. Examine:
- Rolling returns — how consistent is performance across market cycles?
- Downside capture ratio — does it fall less than benchmark during corrections?
- Portfolio turnover — lower is more tax-efficient
- Manager tenure — at least 3 years managing this specific fund
Allocation Recommendation
Flexi cap funds are ideal as the core 40–50% of an equity portfolio for investors who want professional active management without worrying about category rebalancing. Pair with an index fund for the remaining allocation.