Deviprasad Nair, Head of Mutual Fund, PMS, and AIF at Helios Capital Asset Management India, explains how these funds can generate growth across market cycles while staying aligned with SEBI guidelines.
According to Nair, SEBI introduced the flexi-cap category after observing that many multi-cap funds were heavily concentrated in large-cap stocks, which limited their ability to deliver the full benefits of diversification.
“SEBI mandated multi-cap funds hold at least 25% each in large, mid, and small-cap stocks and created the Flexi-cap category to allow managers genuine discretion while requiring a minimum of 65% in equities,” he said.
This framework ensures that fund portfolios remain transparent and comparable for investors.
Many flexi-cap funds, however, still have more than 70% of their portfolios in large-cap stocks, effectively behaving like large-cap funds.
Nair points out that true flexi-cap investing involves meaningful allocations to mid- and small-cap stocks as well.
“Flexi-cap funds are not just about stability from large-caps. They can capture growth opportunities in mid- and small-caps depending on market valuations and cycles,” he said.
Rebalancing in flexi-cap funds is generally driven by market dynamics rather than fixed timelines.
For instance, in early 2024, when mid-cap valuations were high, Helios MF reduced mid-cap exposure and increased large-cap holdings.
As market conditions evolved later, the fund trimmed large-cap allocation to allow exposure to more attractive opportunities in other segments.
Nair emphasises that such dynamic rebalancing reflects the core purpose of flexi-cap funds: balancing stability with growth potential while remaining flexible.
He also warns that over-concentration in large-caps can limit a fund’s ability to generate alpha. Investors may end up duplicating their existing large-cap holdings and miss potential gains from mid- and small-cap stocks.
“The strength of flexi-cap funds lies in using the full breadth of the market while making disciplined, research-driven shifts,” Nair added.
SEBI’s guidelines, Nair said, provide clarity and differentiation between fund categories, helping investors make informed choices.
For those considering Flexi-cap funds, understanding the fund’s allocation strategy and approach to rebalancing is critical to achieving growth across market cycles.
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