Flexibility is the liberating force that propels us beyond limitations and opens doors to new horizons. It is the catalyst for progress, yet demands intelligent decision-making and adaptability.
In the world of investments, flexi-cap funds embrace flexibility like no other. These funds offer the flexibility to navigate various market segments, unhindered by rigid investment constraints.
Join us on a journey to expand your understanding of flexi cap funds. Let’s Start!
Flexi Cap Fund: Meaning & Explanation
There are various categories and types of mutual funds. Flexi Cap Funds are a category of mutual funds that offer the flexibility to invest in companies across different market capitalizations like Large Cap, Mid Cap and Small Cap.
Unlike multi-cap funds, flexi-cap funds do not have any predetermined specific mandates or allocations. This means the fund manager has the freedom to allocate funds across market segments based on market conditions, valuation opportunities and growth prospects.
What Makes Them Different From Small, Mid or Large Cap Funds
Small Cap funds invest in stocks of companies with a market capitalisation of less than ₹5,000 crores. These funds come with higher levels of risk and the potential to generate better returns than mid-cap and large-cap funds.
Mid-cap funds invest in stocks of companies with a market capitalisation of between ₹5,000 to 20,000 crores. They are less risky than small-cap funds but also potential for returns is comparatively low.
Large-cap funds invest in stocks of companies with a market capitalisation of more than ₹20000 crores. These funds are considered the safest among the three and the potential for returns is lower than small-cap or mid-cap funds.
Flexi-cap funds have the flexibility to invest in companies of different sizes. This means the fund manager can choose investments based on their analysis of market conditions and opportunities.
Investment Strategy of Flexi Cap Funds
The investment strategy of flexi cap funds is driven by the fund manager’s ability to dynamically switch between different market segments based on their analysis of market conditions and relative valuations.
The allocation to different market caps can vary over time, allowing the fund manager to take advantage of opportunities across the whole market.
Advantages of Flexi Cap Funds
Flexi-cap funds offer a number of advantages to their investors. Chief advantages may include:
By investing in companies of different sizes and across multiple sectors, flexi cap funds offer a good diversification that can potentially reduce the impact of volatility and improve the overall risk-adjusted returns.
2. Active Management
Flexi-cap funds are designed in a way that requires active management. Active management can lead to better investment choices as managers actively respond to market changes and adjust the portfolio accordingly.
3. Adaptive Allocation
Adaptability is a chief feature of flexi cap funds. They have the flexibility to dynamically allocate assets depending upon changing market conditions and shift between different market caps if they find growth opportunities based on their research & analysis.
4. Potential for Higher Returns
Flexi-cap funds have the potential to generate higher returns. This is because they are not limited to one segment of the market. Exposure to different segments of the market can enhance the chances of capturing attractive investment opportunities.
5. Better Risk Management
As you know flexi cap funds invest across different market capitalisations and have the feature of active management. These two factors may help in better management of risk.
Disadvantages of Flexi Cap Funds
Flexi Cap Funds also come with many disadvantages that investors should know about.
1. Higher Expense Ratio
Flexi-cap funds involve active management which requires in-depth research, analysis & frequent portfolio adjustments resulting in higher expense ratios than other funds. The higher expenses can erode a portion of the investor’s returns over the long term.
2. Manager Risk
The performance of the fund can be highly influenced by the manager’s skill, experience & market insights. If the fund manager fails to make sound decisions based on changing market conditions, it may adversely impact the fund’s returns.
3. Concentration Risk
While flexi-cap funds offer good diversification, there is still a possibility of concentration risk. The portfolio can become overly concentrated in a particular market segment or a few individual stocks depending upon the fund manager’s biases.
4. Liquidity Risk
Even if flexi-cap funds are open-ended in nature, they may face liquidity risk if there is insufficient liquidity in the underlying securities they hold especially for mid-cap and small-cap stocks.
5. Difficult To predict Performance
Dynamic allocations and market volatility make it difficult for investors to predict the performance of the fund. This may lead to confusion if the fund’s performance is aligned with investment goals.
Points To Keep In Mind While Choosing Flexi Cap Fund
Before you invest in any flexi fund, consider the following points.
- Define your investment objective & time horizon.
- Understand your risk tolerance capacity.
- Consider the expense ratio of the fund carefully as it can eat your returns.
- The historical performance of the fund, however, is not guaranteed for similar future performance.
- The fund manager’s experience & track record.
- Compare different suitable flexi cap funds.
Are Flexi Cap Funds more volatile than other types of funds?
The volatility of flexi cap funds depends on various factors such as portfolio allocation, market fluctuations, economic conditions and company-specific factors. Sometimes it may show higher volatility while other times lower.
What is the expense ratio for Flexi Cap Funds?
The expense ratio refers to the management expenses for the funds. The expense ratio for flexi funds may fall between 0.5% to 2% or sometimes more.
Can I invest in Flexi Cap Funds through SIP (Systematic Investment Plan)?
Yes! you can invest in flexi cap funds through SIP. It is a great and popular way of investing.
Are there any exit loads or penalties for redeeming Flexi Cap Funds?
Yes, there is an exit load for flexi cap funds if you redeem it before a specific period.
Are there any minimum investment requirements for Flexi Cap Funds?
The minimum requirement for most flexi cap funds in India is Rs. 500.