Flexi-cap mutual funds invest in companies regardless of their market capitalisation. Unlike large, mid, and small-cap mutual funds, which select companies based on the relevant market cap, flex caps invest across market capitalisations based on their growth potential. Flexi caps can invest at least 65 per cent in equities, as per the rules of the Securities and Exchange Board of India (Sebi).

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Flexi-Cap Performance:

As of April 30, 2024, flexi-cap funds had 1.45 crore folios and Rs 3.65 lakh crore worth of assets under management. This is the highest of the 11 equity-oriented categories of mutual funds. The net inflow in flexi-cap funds in April was Rs 2,172.93 crore, compared to Rs 357.56 crore in large-cap funds and Rs 2,723.87 crore in multi-cap funds, as per the Association of Mutual Funds of India (AMFI) data.

As of March 31, 2024, flexi-cap mutual funds had generated an average 40 per cent return in one year and 17 per cent in five years. Multi-cap funds gave around 20 per cent return, and large-caps gave around 15 per cent in five years, according to ICRA.

Are Flexi-Cap Funds Useful In Retirement Planning?

Retirement planning is for the long term, and according to experts, one should invest in equities for a longer period to let it grow. The portfolio in flexi-cap funds is inclined towards equity, so one should invest in these funds with at least five years or longer time horizon in mind.

According to Priyadarshini Mulye, a Sebi-registered investment advisor and certified financial planner, “One should invest in flexi cap funds for a minimum period of 6 to 7 years. Flexi-cap mutual funds carry a portfolio, which is a blend of large, mid & small cap stocks. It gives a risk spread across capitalisation and also has the potential to gain returns from these. When a retiree has knowledge of market volatility and a suitable risk appetite, one should consider flexi-cap funds for long-term wealth creation in a suitable asset allocation. This will potentially help them to earn returns over a long-term period on their hard-earned Retirement Corpus”.

Since flexi caps spread their risk across market capitalisations, they have the potential to grow in the long term. However, investors must be willing to take risks and invest long-term.

Conversely, if someone who does not want to take risks, such as a retiree who is living on savings, Mulye suggests other schemes. “Large-cap Index funds and Dynamic asset allocation funds are in the equity category, and short- to medium-term debt funds are in the debt category. However, a retiree must read and understand all related documents, terms of investment and redemption, tax implications, and risk levels before investing”, says she.

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Taxation Of Flexi-Cap Funds:

Flexi-caps are treated as equity investments for taxation purposes because they invest a minimum of 65 per cent of the portfolio in equity instruments.

• If an investment in flexi cap plans is kept for less than a year (twelve months), it is regarded as short-term, and any profit from selling it is considered short-term capital gain (STCG).  STCG is taxable at the rate of 15 per cent on the gains.
• If the holding period is longer than 12 months, and the flexi-cap fund is redeemed after this period, the gains are considered long-term capital gain (LTCG). The LTCG is 10 per cent on the capital gains. However, any gain up to Rs 1 lakh in a year is exempt from tax, but the gain beyond this limit is taxable as LTCG.

How To Use Flexi Cap For Retirement Planning?

An investor may invest some part of the portfolio in equity to give it a chance to generate returns higher than inflation. Equity is required for growth but comes with its own risk. Yet, one should not reject it outright before weighing its pros and cons. Whether an individual has just started earning or is close to retirement, one may consider flexi-caps until one has enough time to stay invested.

In the last few years, retail investors’ participation in mutual funds through systematic investment plans (SIP) has consistently increased. The SIP mode itself is a risk-mitigating strategy through rupee cost averaging and compounding benefits. So, when considering flexi funds or other funds, SIP is always a safer route.