Flexi-Cap Funds: Revisit Your Asset Allocation
We now have the 37th category of mutual funds in the form of a flexi-cap fund. This has been in the wake of SEBI’s decision to regulate the multi-cap category that needs to be necessarily diversified among large-cap, mid-cap and small-cap stocks in the proportion of at least 25 per cent each. It is in continuation of the ‘true to label’ philosophy by the regulator for better investor education. Nevertheless, from investors’ perspective, this entails visiting the asset allocation once the MF schemes re-organise themselves and decide on their future course. This implies that investors will have to take a decision about whether they want to remain with a multi-cap fund or move into the new category of a flexi-cap fund. Most of the funds with higher asset under management have already decided to migrate to a flexi-cap fund.
Investors in these schemes will face no impact to their original asset allocation as these funds will be managed in the same way as they were managed earlier and the fundamental characteristics will remain the same. Nonetheless, if your fund decides to stick to multi-cap schemes and if it needs to make major re-organisation in terms of buying and selling of stocks, you need to take a call if you want to continue with the scheme. Looking at the current portfolio structure of most of the multicap funds, they are more inclined towards large-cap and mid-cap stocks.
So, they need to sell some portion of large-cap stocks or mid-cap stocks and buy small-cap stocks. This means that your overall asset allocation changes. If it suits your risk profile and is within your risk tolerance, you may continue with your investment; else, you can exit from the fund and make fresh investment to funds that suit your asset allocation. In case you select a flexi-cap fund, you lose the flexibility to decide your asset allocation and will depend upon the fund manager. This type of fund is better suited for someone who does not want to actively manage his portfolio and instead totally rely upon the expertise of fund manager .
SHASHIKANT