In recent years, mutual funds have gained popularity in India. Mutual funds play a crucial role in safeguarding your investments against inflation. Notably, flexi cap mutual funds have also become important. Because they offer flexibility to adapt to changing market conditions. Consequently, you can plan your investments effectively.
But before exploring the world of flexi cap mutual funds, you should know about multi-cap mutual funds.
Multi-cap mutual funds
Multi-cap funds invest in stocks of different market capitalizations: large-cap, small-cap, and mid-cap.
They offer a diversified portfolio and this diversification can help match your risk tolerance. Hence, opting for the multi-cap fund is a wise decision to align with your risk tolerance. Each fund allocates investments in varying proportions.
Multi-cap funds require a minimum of 75% allocation to equities. In other words, at least 75% of the fund’s overall assets must be dedicated to investments in equity and instruments associated with equity.
Securities and Exchange Board of India (SEBI) mandates that multi-cap mutual funds must allocate a minimum of 25% of their portfolio to companies in the large-cap, mid-cap, and small-cap categories.
Within multi-cap funds, fund managers have the freedom to make choices regarding stock selection and market capitalization preferences.
Multi-cap funds offer higher returns. So, to maximize these benefits, a longer investment horizon, typically 5 to 7 years, is advisable.
Additionally, multi-cap funds have lower long-term risk profiles. So, this makes them a more conservative choice when compared to small-cap and mid-cap funds in terms of risk exposure.
Flexi cap mutual funds
An open-ended, adaptable equity scheme is referred to as a flexi cap fund. It allocates investments across businesses irrespective of their market capitalization and consists of large, mid-sized, and small-cap companies.
Flexi cap funds mandate a minimum of 65% allocation to equities. This means that a minimum of 65% of the fund’s total assets must be invested in equity and instruments containing an equity component.
Flexi cap mutual funds have the flexibility to allocate investments without specific mandates. So they are highly flexible. They can invest in stocks from various capitalization categories. Furthermore, they are not constrained by predetermined allocation percentages.
Flexi cap funds offer access to diverse equity securities across industries and businesses. This diversity can result in a well-balanced portfolio and good returns. Additionally, when held over an extended period, they provide flexibility in risk management during market fluctuations.
If you are looking for a fund focused on large-cap stocks, you may find flexi cap funds good. These funds incorporate mid-cap and small-cap stocks. Moreover, they are suitable for investors who want to invest funds with a minimum 5-year investment horizon.
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Flexi cap mutual funds offer numerous benefits. They help mitigate market volatility. This, in turn, allows you to maintain balanced portfolios more easily.
Additionally, small investors find these funds well-suited. Ultimately, they offer the potential for higher returns with reduced risk.
Conclusion
Both multi-cap and flexi cap funds provide portfolio diversification. However, it is crucial to consider them in alignment with your financial goals. Also, take into account your risk tolerance and investment horizon.
