What are Flexi Cap Funds and Why You Should Consider Investing in It? - Details Here

Mumbai: In a volatile and unpredictable market, a versatile and adaptive investment strategy can be beneficial. One such dynamic investment option is a flexi cap fund.

Unlike most other equity mutual fund categories, flexi cap funds have the flexibility to invest across large, mid, and small-cap companies. Moreover, unlike large and mid-cap funds or multi cap funds, flexi cap funds do not have to ensure a minimum allocation to any market capitalisation – such funds can freely adjust their portfolio between large, mid and small cap companies.

This freedom allows fund managers to potentially capitalise on opportunities in the market, regardless of a company's size.

One such compelling option in the Flexi Cap Fund. The Flexi Cap Fund sets itself apart from other funds in this category through its future-focussed MEGATRENDS strategy, which seeks to identify and tap into large-scale economic changes and emerging opportunities.

This article tells you more about What are Flexi Cap Funds and why it can be a suitable addition to your portfolio.

What is a Flexi Cap Fund? 

A flexi cap fund is a type of equity mutual fund that can invest in large-cap, mid-cap, and small-cap stocks, giving the fund manager the freedom to identify opportunities across different segments of the market. 

Here’s a brief overview of what these stock categories are: 

• Large-cap stocks are stocks of well-established companies that are the largest in the country in terms of market capitalisation. They offer relative stability owing to the strength of the companies, but lower growth potential than smaller firms.

• Mid-cap stocks belong to companies that are in the expansion phase, offering higher growth potential than large cap stocks, albeit with more volatility.

• Small-cap stocks are companies that are relatively new or smaller in size. They offer significant growth potential but come with the highest risk among the three market caps.

Flexi cap funds are similar to multi-cap funds in that they can invest across market capitalisations. However, what sets them apart is their dynamically managed portfolio. 

While multi cap funds have to ensure a minimum 25% allocation to large, mid and small-cap stocks, respectively, flexi cap funds can freely adjust their portfolio across market capitalisations, so far as they maintain a 65% equity allocation.

This means that fund managers have greater flexibility to adapt their investment approach to changing market conditions.

What makes Flexi Cap Fund unique

The Flexi Cap Fund follows a unique and forward-looking MEGATRENDS investment strategy. Megatrends are powerful, transformative forces that have a significant impact on the economy, business, and society. 

Examples of megatrends include technological advancements, urbanization, renewable energy and demographic trends such as an ageing population.

Fund managers spot these trends and incorporate them into their investment strategy to and create a portfolio that is relatively resilient to short-term fluctuations and offers sustainable long-term growth potential.

Here’s how a megatrends strategy can influence and optimise a fund’s portfolio and performance: 

• Long-term growth potential: Stocks that align with megatrends have the potential to show significant growth as these trends evolve.

• Risk mitigation: Companies that are poised to benefit from megatrends can potentially be more resilient to temporary fluctuations and better prepared for future challenges.

• Strategic investments: By focusing on megatrends, fund managers can adopt a forward-looking approach that can help generate optimal long-term growth potential.

• Early mover advantage: Identifying and investing in megatrends early can provide a significant advantage. By getting in on the ground floor of a growing trend, investors may be able to capture substantial returns before the market fully recognises the potential of these trends.

• Global opportunities: By focusing on megatrends that are prevalent across geographies, investments can potentially capitalise on emerging global opportunities.

• Societal impact: Many megatrends are driven by societal or environmental factors. By investing in companies that are addressing these issues, investors can align their financial goals with their values and contribute to positive change.

• Innovation: Megatrends often involve innovations that can revolutionise industries and create new market opportunities. By investing in companies that are at the forefront of these innovations, you can potentially capture significant returns in the long term.

Reasons to consider investing in Flexi Cap Fund 

Here are some advantages of the Flexi Cap Fund 

• Long-term focus: Megatrends represent structural changes that can reshape entire sectors and economies. Because these shifts are fundamental and broad-based, they have the potential to create opportunities for sustained growth over extended periods. Unlike short-term trends, which may be influenced by cyclical factors, megatrends have the capacity to persist, regardless of short-term economic conditions.

• Resilience in the Face of Volatility: While market fluctuations can impact any investment, companies aligned with megatrends often demonstrate relative resilience to short-term movements and volatilities. This resilience can result in sustainable growth potential in the long-term.

• Diversification: Since these funds invest in companies of all sizes and across various sectors, they reduce the risk of investing in just one market capitalisation or sector.

• Flexibility: Flexi cap funds give the fund manager the flexibility to adjust the portfolio based on market conditions. If mid-cap or small-cap stocks are poised for growth, the manager can increase investments to them. In times of volatility, fund managers can increase the allocation to the relatively stable large cap stocks.

• Potential for optimal returns: By investing in a mix of large, mid, and small-cap stocks, flexi cap funds can offer higher return potential than pure large cap funds. Additionally, the dynamic management style can help fund managers leverage opportunities across market capitalisations.

• Risk mitigation: The flexibility of flexi cap funds can give them greater scope to mitigate risk than multi-cap, mid-cap or small-cap funds. The fund manager can reduce exposure to volatile small-cap stocks in uncertain times and shift to more stable large-cap stocks.

Offering flexibility, diversification, high return potential and a unique megatrends strategy, Flexi Cap Fund can be a suitable choice for investors seeking long-term wealth-building potential. 

A dynamic asset allocation approach gives fund managers enhanced flexibility in leveraging market opportunities across market capitalisations. 

You can invest online or offline through Various AMCs, a registered distributor or an aggregator platform. You can invest in SIP (Systematic Investment Plan) or lumpsum. The minimum investment amount is Rs. 500.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

With PTI Inputs