A Flexi Cap Fund is essentially an equity mutual fund that builds up its portfolio by including large-cap, mid-cap, and small-cap stocks across companies.
Investment Objective: The investment objective of the scheme would be to seek a long-term capital appreciation, diversifying investments across various sectors and company sizes. This is unlike other mutual funds that restrict investment to one particular market segment. The Flexi Cap Fund can change its portfolio based on the outlook of the fund manager on the market.
Key Features of Flexi Cap Funds
Diversified Investment: Flexi Cap Funds are not bound to invest in one category of companies, say large-cap or mid-cap. This flexibility allows the fund to alter its exposure based on prevailing market conditions and opportunities. The manager may choose to invest more in large-cap stocks during stable market periods, or shift focus to mid and small-cap stocks when they offer better growth potential.
Active Management means the fund is actively managed by the portfolio manager, who constantly observes the market and changes in the composition of the portfolio to achieve a return superior to that of the normal market. It is the opposite of passive funds, such as index funds, which try to track the performance of a market index.
Growth Potential: Since Flexi Cap Funds are invested across different market segments, they have the potential to offer high growth. The small-cap and mid-cap stocks, specifically, tend to offer higher growth potential but at an increased risk factor. Large-cap stocks may not offer significantly high growth in a rising market, though they are normally stable.
Risk and Return: The level of risk in Flexi Cap Funds would vary depending upon the proportion of large-cap, mid-cap, and small-cap stocks held. Normally, the more the scheme invests in small-cap stocks, higher will be the return to be expected with increased risk. At the same time, a larger part of the portfolio being large-cap tends to mute risk, acting almost like a brake on growth.
Suitability: Flexi Cap Funds are ideal for investors looking for long-term capital appreciation and comfortable with market volatility. They are apt for investors not desirous of tying up their investments in any one narrow market segment, say purely large-cap or only small-cap stocks, while concurrently looking for a diversified, actively managed investment avenue.
Advantages of Flexi Cap Funds
- Flexibility: The fact that the fund can be flexible between large-cap, mid-cap, and small-cap stocks depending on market conditions is a big plus.
- Diversification: Invest across different company sizes and sectors to spread the risk, reducing the exposure given to any single stock or sector.
- Long-term capital growth: Funds with this objective are targeting long-term growth, which can suit long-term investors.
Conclusion
Flexi-cap funds offer undiluted and balanced exposure to a wide spectrum of companies and sectors whereby growth across different market segments provides opportunities for investors. With pure equity investment, there is some amount of risk, and one should check their risk tolerance before investing in such funds.
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