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Investors are always looking for flexible and stable investment opportunities with a scope of growth. Flexi caps are an ideal choice that offers all of these benefits. The dynamic investing strategy of flexi cap funds allows them to take advantage of new trends and adjust to shifting market conditions.
This flexibility offers investors the chance for both significant long-term returns and portfolio diversification across various market groups. Nonetheless, it’s critical to be aware of the risks involved, as they might affect the performance of flexi cap funds. These risks include sectoral risks, market volatility, and managerial choices. This article will explain the workings of flexi cap funds, looking at the advantages, dangers, and variables that affect their performance.
An overview of flexi cap funds
It is important to know what is flexi cap fund before considering it as an investment choice. Flexi cap funds are essentially mutual funds in the flexi cap fund category. These are sometimes called multi-cap funds and allow investors to choose how their assets are allocated among different market capitalisations.
Flexi cap funds are free to invest in firms in the big-cap, mid-size, and small-cap categories at the fund manager’s discretion and the state of the market. This is in contrast to other fund types with preset allocation strategies. The table below highlights hypothetical situations to show the adaptability of flexi-cap funds and demonstrate how fund managers can modify allocations.
| SCENARIO | ALLOCATION | |||
| Large Cap | Mid Cap | Small Cap | Specific Caps | |
| Balanced Allocation | 40% | 30% | 30% | |
| Growth Based Allocation | 50% | 30% | 20% | |
| Opportunity Based Allocation | 40% | 30% | 30% | |
| Defensive Allocation | 60% | 25% | 15% | |
| Value-Based Allocation | 50% | 25% | 25% | |
What is the NAV of a flexi cap fund?
An important metric for assessing the performance of flexi cap funds is net asset value (NAV). The market value of the assets is expressed as the NAV of flexi cap fund. It is calculated by dividing the entire asset value of the fund by the total number of units in circulation. A flexi cap fund’s NAV varies according to how well the equities it owns are performing on the ground.
Comprehending the investment scenario
Flexi cap funds differ from conventional mutual funds because they use a dynamic investment strategy. The basic factor of this strategy is the ability to invest across companies with different market capitalisations. This allows fund managers to adjust to shifting market conditions and grab new opportunities.
Advantages of flexi cap funds
The major benefits of flexi cap funds are apparent by examining its investment scope. The prime advantages are detailed below.
Flexible allocation of assets
Flexi cap funds can distribute their assets among large cap, mid cap, and small cap equities according to the state of the market and the fund manager’s evaluation of future growth opportunities. Flexi cap funds can change the weightings in their portfolios to take advantage of the best possible investment opportunities while efficiently controlling risk.
Proactive administration
Knowledgeable fund managers are integral to investment decision-making. This is because flexi cap funds are actively managed. These managers conduct in-depth investigations and analyses to find cheap stocks, growth prospects, and possible hazards. Fund managers seek to give clients greater returns by utilising their knowledge and market insights to outperform the broader market indices.
Extended Term
Generally speaking, flexi cap funds have a long investment horizon and concentrate on building wealth for investors over time. Fund managers stress that while volatility and short-term market swings may affect portfolio performance, it’s crucial to stick to the investing thesis and refrain from making snap decisions based on passing market trends. Flexi cap funds try to reduce the impact of short-term market noise while increasing investors’ wealth over time by maintaining discipline and patience.
Variety
Flexi cap funds provide diversification advantages by investing in a range of businesses. These funds can mitigate the effects of volatility in individual equities on the portfolio as a whole by extending their investments across multiple stocks. Over time, variety improves the stability of investment returns and reduces risk.
Scope for growth
Flexi cap funds can take advantage of growth possibilities at different stages of a company’s lifecycle by spreading their investments among companies with varying market capitalisations. These funds provide the option of investing in mid cap and small cap companies with greater room for growth and well-established large-cap corporations with steady growth prospects. The opportunity to follow the development of businesses in various market niches might result in lucrative long-term profits.
Market Adaptability
Flexi cap funds are an excellent choice for navigating economic cycles and shifting market conditions. Fund managers may allocate a larger portion of the portfolio to mid cap and small cap firms during economic expansions to take advantage of greater growth potential. They might invest more in defensive industries or large-cap equities to maintain stability in times of market crisis. Flexi cap funds can efficiently manage risks in various market conditions while optimising returns due to its flexibility.
Popular flexi cap funds
The six prominent flexi cap fund options available in the market in no particular order are:
- Canara Robeco Flexi Cap Fund
- UTI Flexi Cap Fund
- Quant Flexi Cap Fund
- DSP Flexi Cap Fund
- Parag Parikh Flexi Cap Fund
- Edelweiss Flexi Cap Fund
Risk factors to keep in mind
Although flexi cap funds have several advantages, it’s important to be aware of and weigh the risks as well:
- Market: Flexi cap funds are subject to market risk like any other equity investment. Stock market changes may affect the NAV of the flexi fund and put investors at risk of losing money.
- Sectoral: Flexi cap funds are vulnerable to hazards unique to certain sectors because they invest across industries and sectors. A decline in a specific industry may harm the fund’s performance.
- Managerial: A flexi cap fund’s performance is primarily determined by the fund manager’s knowledge and abilities. Bad investment choices or personnel changes within the fund management group may impact returns.
- Liquidity: Investing in mid-cap and small-cap equities may expose investors to liquidity issues.
Conclusion
Investors can choose from various investment options with flexi cap funds. These combine the advantages of active management and flexibility. Investors should consider their investment goals, risk tolerance, and time horizon before investing. By speaking with a financial advisor, flexi cap funds can successfully complement investing strategy and financial objectives.
FAQs
Yes, because flexi cap funds can take advantage of growth possibilities in various market categories, they are a good choice for long-term investing goals.
Periodically reviewing your flexi cap fund’s performance is advised; this should be done on average every six months to a year. But refrain from acting rashly in response to transient changes.
Switching mutual fund categories is possible. Timing these transitions can be difficult and may not yield the best returns. Before making any changes to your investing strategy, speak with a financial counsellor.
It is recommended for investors with medium to high-risk handling.