As per SEBI categorization norms, Flexi Cap funds are mandated to invest a minimum of 65% of its assets in equity and equity related instruments with no restrictions around market cap allocations. Multi-cap funds are restricted to a market cap of 25% allocation across each segment (i.e., large-caps, mid-caps, and small-caps). This has pushed many multi-cap funds to transform themselves into Flexi Cap Funds in order to retain a higher allocation to large caps in their portfolio.

Flexi Cap funds allow investors an opportunity to diversify their portfolios across market capitalization based on prevailing market conditions. Flexi cap funds have the flexibility to invest across large-caps, mid-caps, and small-caps. The flexible asset allocation in the scheme will help to take positions based on risk-return opportunities.

Investors willing to invest across market caps to benefit from the performance of market segments in various market cycles may consider investing in Flexi Cap funds. The current market conditions, with the rising threat of Omicron variant and US federal reserve’s announcement of tightening the monetary policy may cause changes in economic activities that influences the performance of various market segments, this makes it a favourable environment to invest in Flexi cap funds.

Samco Mutual Fund has launched Samco Flexi Cap Fund, the first offering from the debutant in the mutual fund industry. It is an open-ended dynamic equity scheme investing across large-cap, mid-cap, small-cap stocks.

Table 1: Details of Samco Flexi Cap Fund

Type An open-ended dynamic equity scheme investing across large cap, mid cap, small cap stocks. Category Flexi cap Fund
Investment Objective The investment objective of the Scheme is to seek to generate long-term capital growth from an actively managed portfolio of Indian & foreign equity instruments across market capitalisation. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved.
Min. Investment Rs 5000/- and in multiples of Re 1 thereafter. Additional Purchase Rs 500/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
SIP/SWP/STP Available
  • Direct
  • Regular
  • Growth
  • Income Distribution Cum Capital Withdrawal (IDCW)
Entry Load Not Applicable Exit Load
  • 2.00% if the investment is redeemed or switched out on or before 365 days from the date of allotment of units.
  • 1.00% if the investment is redeemed or switched out after 365 days but on or before 730 days from date of allotment of units.
  • No Exit Load will be charged if the investment is redeemed or switched out after 730 days from the date of allotment of units.
Fund Manager
  • Ms Nirali Bhansali
  • Mr Dhawal Ghanshyam Dhanani
Benchmark Index Nifty 500 Index TRI
Issue Opens: January 17, 2022 Issue Closes: January 31, 2022

(Source: Scheme Information Document)  

The investment strategy for Samco Flexi Cap Fund will be as follows:

Samco Flexi Cap Fund aims to generate long-term capital appreciation by investing in a dynamic mix of equity and equity related instruments across market capitalizations. The scheme would invest in companies based on various criteria, including sound professional management, track record, industry scenario, growth prospects, liquidity of the securities, etc.

The scheme follows a 3E investment strategy that endeavours to invest only in Efficient Stress Tested companies, buy at an Efficient price, maintain Efficient portfolio turnover, and reduce dealing & impact costs. Samco’s HexaShield stress tested framework strictly defines and quantifies the definition of a high-quality business. The investable universe is restricted to a limited set of ~125 businesses from India and the globe that pass the stringent stress tests. The aim is to construct a portfolio of 25 stocks from this universe.

The portfolio will be built utilising a bottom-up stock selection process, focusing on the appreciation potential of individual stocks from a fundamental perspective. The AMC employs a “Fair value” based research process to analyse the appreciation potential of each stock in its universe (Fair value is a measure of the intrinsic worth of a company).

There will be no particular bias towards any market cap size or sector. The scheme may also invest a certain portion of its corpus in foreign securities.

Under normal circumstances, the Asset Allocation will be as under:

Table 2: Asset Allocation for Samco Flexi Cap Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Indian Equity across market capitalization 65 100 High
Foreign securities 0 35 High
Tri-party Repo (TREPS) through CCIL 0 10 Low

(Source: Scheme Information Document)  

By utilising a holistic risk management strategy, the scheme will endeavour to manage risks associated with investing in equity markets. The scheme has identified the following risks and design risk management strategies, which are embedded in the investment process to manage these risks

  • Quality Risk – Risk of investing in unsustainable/weak companies.
  • Price Risk – Risk of overpaying for a company.
  • Liquidity Risk – High Impact cost of entry and exit.
  • Concentration risk – Invest across the market capitalization spectrum and industries/ sectors.
  • Volatility Risk – Volatility in price due to company or portfolio-specific factors
  • Event Risk – Price risk due to a company/sector specific or market event.

Who will manage Samco Flexi Cap Fund?

Ms Nirali Bhansali and Mr Dhawal Ghanshyam Dhanani (for overseas investments) will be the designated fund managers for this scheme.

Ms Nirali Bhansali will be managing the equity portion of the portfolio. She holds B.E and an MBA degree, started as a senior analyst at Samco Securities Ltd. and has been the Head of Equity Research. She has over 7 years of work experience with more than 5 years spanning capital markets and investment research. She has been instrumental in preparing diversified long-term baskets of stocks for the Stock Basket product by deep-diving into the business models and number crunching nitty-gritties of varied Indian companies. At Samco Securities Ltd., Ms. Bhansali currently does not manage any other schemes.

Mr Dhawal Ghanshyam Dhanani will be managing overseas investments of the portfolio. He is a Charted Accountant and B. Com graduate. Mr. Dhanani started as an equity research analyst at Samco Securities Ltd. He has over 5 years of work experience with more than 2 years spanning capital markets and investment research. He has been known for an in-depth examination of the business models and computational crux of varied Indian companies. At Samco Securities Ltd., Mr. Dhanani currently does not manage any other schemes.

Fund Outlook – Samco Flexi Cap Fund

Samco Flexi Cap Fund aims to build a portfolio that is a mix of 25 domestic and international stocks with the flexibility to allocate across large, mid and small-cap stocks. The scheme will use an ‘active share’ metric that shifts from traditional benchmarking and focuses on investing heavily in stress-tested companies.

The stock selection will be based on an in-house proprietary investment framework – the HexaShield framework. Companies will be shortlisted based on six criteria: competitive strength and pricing power, balance sheet and insolvency, reinvestment and growth, corporate governance and leadership, cash flow, and regulatory compliance.

The portfolio construction strategy offers investors to benefit from reasonable concentration and diversification across market capitalization. There is no restriction on market caps, and the Flexi Cap strategy allows fund managers to actively manage the allocation between market caps based on market valuations.

However, note that the scheme may offer diversification and investment in large caps that provide stability, but the allocation to mid and small caps that capture emerging opportunities is considered highly risky. The scheme allocates a small portion towards foreign securities, attracting currency risk and geo-political risk. The fund manager’s ability to construct the Flexi Cap portfolio remains to be seen, and it will influence the performance of this scheme.

In addition, the looming threat of the Delta plus the Omicron variant that has led to the rapid rise of COVID-19 cases in India and many parts of the world poses a major risk to economic growth. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is unknown. These, among many other factors, may affect the scheme’s performance, and the portfolio may face higher volatility in the near term.

Thus, the scheme is suitable only for high-risk investors with a long investment horizon of at least 5-7 years. Ensure that your investment objectives align with the fund.

This article first appeared on PersonalFN here

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