Flexi Cap Funds are frequently chosen because they give the fund manager freedom to move across large cap, mid cap, or small cap stocks as market conditions change. But this flexibility is not unlimited.
Under SEBI’s mutual fund scheme categorisation framework, a Flexi Cap Fund is still an equity scheme, which means it must maintain a minimum equity exposure on an ongoing basis.
Let us break this down in simple terms.
What is the “minimum equity exposure” rule for Flexi Cap Funds?
For a scheme to be classified and marketed as a Flexi Cap Fund, it is required to invest at least 65 percent of total assets in equity and equity related instruments.
This 65 percent requirement is the core “minimum equity exposure” rule.
What counts as “equity and equity related”?
In mutual fund disclosures, “equity and equity related instruments” generally include:
Listed equity shares
Equity derivatives, used as permitted within SEBI’s mutual fund framework
Your scheme’s monthly portfolio and factsheet will clearly show how the fund is meeting this requirement.
Why SEBI uses a 65 percent threshold
The 65 percent minimum is designed to ensure that:
♦ Investors are not surprised by an equity fund behaving like a debt or cash-heavy product for long periods
♦ Scheme labels remain comparable across AMCs under standardised categories
It also aligns with how ‘equity oriented’ treatment is commonly referenced in Indian tax material, which uses a 65 percent equity threshold in defining equity-oriented mutual funds for certain capital gains provisions.
(Tax rules can be nuanced, so treat this as a definition reference rather than tax advice.)
Can a Flexi Cap Fund ever dip below 65 percent equity?
Temporary deviations can happen due to:
Market movements
Investor flows
Short-term defensive positioning
SEBI’s master circular framework also lays down expectations on rebalancing timelines for deviations, as applicable to the scheme’s stated asset allocation and permitted bands, with disclosures in scheme documents.
What matters for you as an investor is whether:
The dip is brief and explained, or
The scheme is persistently running low on equity, which would be a red flag for category discipline
How investors can quickly check equity compliance
Use these simple checks (no spreadsheet required):
1. Look at the latest factsheet
Find “Asset allocation” or “Portfolio allocation”
Confirm Equity and equity related is 65 percent or more
2. Check the monthly portfolio disclosure
AMCs publish monthly holdings and exposure summaries
If equity allocation is close to the threshold (for example, 66–68 percent), expect higher tracking pressure during volatile markets
3. Read the Scheme Information Document (SID)
The permitted ranges and rebalancing approach are usually documented
Common investor mistakes to avoid
Treating flexi cap as “all weather” or “semi hybrid”
Ignoring the portfolio and assuming the name guarantees diversification
Comparing Flexi Cap Funds only on recent returns without checking:
Market cap mix
Top sector exposures
Portfolio concentration
Takeaway
Flexi cap funds offer flexibility within the equity market, not an escape from it.
The minimum 65 percent equity exposure rule ensures that these funds remain true to their equity mandate.
If you are comfortable with equity risk and have the patience to stay invested over time, flexi cap funds can play a useful role in your portfolio.
Important Disclaimer
The Tax calculation shown above is for illustration purpose and general information only. Amount(s) mentioned above may undergo a change if assumptions specified herein do not hold good.
Investors are advised to read the scheme information document carefully before investing and consult their Tax Consultant or Financial Advisor to determine tax benefits applicable to them.
An Investor Education and Awareness initiative of Aditya Birla Sun Life Mutual Fund.
All investors have to go through a one-time KYC (Know Your Customer) process. Investors should invest only with SEBI registered Mutual Funds. For further information on KYC, list of SEBI registered Mutual Funds and redressal of complaints, including details about SEBI SCORES portal, please refer to official SEBI resources.
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