The Securities Exchange Board of India (SEBI) recently introduced a mutual fund category known as flexi cap funds. Here’s all you need to know about the fund, its benefits, and more.
What is a Flexi Cap fund?
The flexi cap fund is an equity-oriented scheme that must invest at least 65% of total assets in equity and equity-related financial vehicles. The fund invests with dynamic allocation across the small-cap, mid-cap, and large-cap, stocks. Besides, fund managers get the flexibility to allocate funds in large, mid, and small-cap stocks simultaneously based on market conditions and growth opportunities.
When you invest in flexi cap mutual funds online, you park funds predominantly in equity securities; your investment has the potential for long-term capital appreciation. Here, the fund manager evaluates the growth potential of companies regardless of their market size and invests across industry segments.
Benefits of a Flexi Cap fund
#1 Risk mitigation through portfolio diversification
A flexi-cap fund scheme helps you mitigate risk and lower volatility on your returns. How? Here, the emphasis while investing isn’t on stocks based on market capitalization. This enables you to diversify your investment portfolio across companies in the broad market spectrum.
Let us understand this in detail.
Stocks from different market capitalizations have varying risk levels. For instance, large-cap stocks, typically industry leaders with regular earnings and superior growth potential, are considered comparatively more stable than small-cap stocks. Similarly, small-cap stocks, usually still in the early growth stages with little or no evidence of their earning capabilities, may offer more uncertainty.
Now, in a falling market, small and mid-cap stocks will witness a sharp fall. However, your flexi cap mutual fund will ensure that the losses accrued on these stocks are diluted due to the investment exposure to the large-cap stocks.
Why? This is because investing across multiple asset classes lowers the risk of losses stemming from extreme movements in one or two asset classes.
Moreover, fund managers can increase the fund’s large-cap exposure and reduce the small-cap exposure if necessary. They can switch between different sectors and companies based on the fund’s performance.
#2 Optimise risk-adjusted returns
How? The flexible and dynamic nature of flexi cap funds allows investors to capitalize upon emerging market opportunities. The fund schemes are tailored to pick out growth opportunities in a rising market and balance the risk and return aspects to deliver steady returns in a bearish market.
What’s more, when you start investing with a lump sum or a SIP, you can create a portfolio with a good blend of growth and stability. You can spread your investments across high-growth mid and small-caps and minimize risk with stable large-caps.
Over to you
As an investor with a longer investment horizon and moderate to high-risk appetite looking to build your equity portfolio, flexi cap investments suit you the best. Identify stock-specific opportunities across market cycles, routinely rebalance exposure, and earn steady returns.
Ready to invest in flexi cap funds? Download investment apps like the moneyfy app to find the best-performing fund schemes and strike the right balance between risk and growth with your investment strategies.