Find out what a flexicap mutual fund is
The biggest feature of flexi-cap funds is the flexibility to invest across a wide range of market capitalizations.
Flexi-cap funds are mutual funds that provide investment flexibility across companies with different market capitalizations. Unlike traditional mutual funds, which focus on specific market capitalization segments (large-cap, mid-cap and small-cap), flexi-cap funds have the freedom to invest in a mix of large-cap, mid-cap and small-cap stocks. Holds capped shares without a predefined ratio. This allows fund managers to dynamically adjust their portfolios according to market conditions, opportunities and investment strategies.
The biggest feature of flexi-cap funds is the flexibility to invest across a wide range of market capitalizations. This allows fund managers to optimize returns by shifting investments based on market performance and potential growth opportunities.
Readers should note that the expert opinions expressed in this article are personal and are not intended to predict or time the markets. The views expressed are for information purposes only and are not to be construed as investment, legal or tax advice.
Is it a good idea to invest in flexi-cap funds?
Shaily Gang, head of Tata Asset Management, highlighted five reasons why investors can opt for flexi-cap funds.
1. Sector rotation can be performed. Flexicap funds are diversified across a variety of sectors. They can perform sector rotations, which helps with natural discipline in money management. Each sector fund may have the potential to outperform the broader market depending on the tailwinds of that sector, depending on macro, business and market conditions. Because different sectors go through different cycles, sector fund returns may be more volatile than diversified funds.
2. We can be more faithful to valuation discipline. No market capitalization mandate: There is no mandate, allowing more flexibility in managing the market capitalization of each sector. Funds can apply valuation discipline more faithfully during market phases when valuations are rising in certain sectors. When large-cap valuations look good, Flexicap funds can invest in large-cap stocks based on reasonable valuations while selectively allocating to mid- and small-cap stocks.
3. Overweighting and underweighting sectors provides a lens into the current valuation and future earnings growth of various industries. Flexicap funds can diversify across the valuation curve while diversifying by sector. A Flexicap portfolio may have some revalued stocks along with a significant portion of stable income stocks. They may be overweight in sectors where valuations and earnings are declining, and underweight in sectors where valuations appear excessive and the sector is over-owned.
4. Stock level deviations in diversified funds: For diversified fund categories such as Flexicap funds, because the benchmarks are broad for diversified funds, sector and stock level deviations from those benchmarks may be steeper than for large-cap funds but lower than for small-cap and mid-cap funds. It is very large and the space has not been studied at all. A sector fund's active share, or deviation from its sector benchmark, is relatively lower than the active share of a diversified fund.
5. Part of the core portfolio: While diversified funds form part of a long-term core portfolio, sector fund allocations should generally be looked at over the medium term.
Investors should keep in mind that investment in mutual funds involves market risks and should read all documents related to the scheme carefully. There is no guaranteed return in mutual fund schemes.
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