Are Flexi-Cap Funds a Good Investment in Current Markets?

Are you looking to invest in stocks across market capitalisation? Do you want a flexible approach to building your portfolio? You could try investing in Flexi-Cap Funds. It is a category of mutual funds that invests predominantly in large-cap, mid-cap and small-cap stocks without restrictions. Fund managers maximise exposure to a particular market segment depending on the current market conditions. Should you diversify your portfolio with Flexi-Cap Funds? 

What are Flexi-Cap Funds?

Flexi-Cap Funds invest in stocks across market capitalisation, themes, sectors and industries. According to SEBI rules, the fund invests at least 65% in equity and equity-related instruments. The fund manager can limit or maximise exposure to a particular market segment depending on the current market scenario. 

According to AMFI data, Flexi-Cap Funds had maximum inflows among equity funds of Rs 2,511.74 crore for June 2022. Moreover, the Flexi-Cap Fund category generated an average return of 31% for 2021. For instance, Flexi-Cap Funds outperformed ELSS, small-cap, mid-cap, thematic, sectoral, and Multi-Cap Funds. 

Should you invest in Flexi-Cap Funds?

You may consider investing in Flexi-Cap Funds if you have higher risk tolerance. It may have a higher allocation towards mid-cap and small-cap stocks and is suitable for market-savvy investors. However, you may avoid this investment if this is your first time in the stock market. 

The stock market has been highly volatile after the Russian invasion of Ukraine. It is because International crude oil prices have increased, and India imports more than 80% of its energy needs. As domestic petrol, diesel and LPG prices rise, inflation is soaring in India. 

Flexi-Cap Funds have adopted an innovative approach in the current market scenario. For instance, Flexi-Cap fund schemes had an average allocation of 65% of assets towards large-cap stocks. Investing in large caps is a good approach as these stocks have good stability and higher liquidity in a volatile stock market. Moreover, as large-cap firms are well-established, they offer higher risk-adjusted returns during a stock market downturn. 

Flexi-Cap funds have lower exposure to mid-cap and small-cap stocks when the markets are volatile. It lends stability to the portfolio than mid-caps and small-cap stocks, which tend to crash in a falling stock market. Large-Cap funds have underperformed in recent times, and you may invest in Flexi-Cap funds if you seek suitable alternate investments in the current scenario. 

Why invest in Flexi-Cap Funds?

Flexi-Cap Funds help you construct a diversified portfolio for all market conditions. You get exposure to stocks across sectors, themes and industries. 

Flexi-Cap funds mix different investment styles to maximise investment returns. For instance, the growth style focuses on growth opportunities, while the value style focuses on undervalued stocks to maximise profits over time. 

You could pick Flexi-Cap funds, which have outperformed the benchmark index and peers over time. Moreover, look for consistent performers across bull and bear markets. It pays to pick Flexi-Cap funds that have done well when the stock markets are down. Check the Flexi-Cap fund’s portfolio as some are conservative with higher exposure to large-cap stocks. 

You must invest in Flexi-Cap funds only if you have a time horizon of over five years. It is because equity funds have the potential to offer inflation-beating returns over time. However, choose Flexi-Cap funds with a lower expense ratio which is the cost of managing the fund. It helps increase overall returns over time. In a nutshell, Flexi-Cap funds are a good bet in a volatile stock market.

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@clear.in