Flexi cap funds are mutual funds that offer flexibility in investment across companies of different market capitalisations. Unlike traditional mutual funds that focus on a specific market cap segment (large-cap, mid-cap, or small-cap), flexi cap funds have the liberty to invest in a mix of large-cap, mid-cap, and small-cap stocks without any predefined proportion. This allows fund managers to dynamically adjust the portfolio based on market conditions, opportunities, and their investment strategy.
The most defining feature of flexi cap funds is their flexibility to invest across various market capitalisations. This allows the fund manager to optimise returns by shifting investments based on market performance and potential growth opportunities.
The readers must note that the expert’s opinion expressed in this article are personal and in no way trying to predict the markets or to time them. The views expressed are for information purposes only and do not construe to be any investment, legal, or taxation advice.
Is it good to invest in flexi cap fund?
Shaily Gang, head-products, Tata Asset Management, highlighted five reasons why an investor could choose flexi-cap funds.
1. Can undertake Sector rotation: Flexicap funds diversify across various sectors. They can undertake sector rotation which helps in natural discipline in fund management. Respective Sector funds may have the potential to outperform the broader markets, basis corresponding sector tailwinds depending on macro, business and market conditions. Different sectors go through different cycles and thus sector funds returns might be patchy with higher volatility than diversified funds.
2. Can be more true to valuation discipline: No marketcap mandate: Market cap under each sector could be managed with more flexibility as there is no mandate. The fund can be more true to valuation discipline in market phases where valuations have run up in specific segments. When the large cap valuation seems better, Flexicap funds can load up on large caps while still having an allocation towards midcaps and small caps selectively basis pockets of reasonable valuation.
3. Overweight and underweight on sectors vide the lens of current valuation and future earnings growth of various sectors: Flexicap funds may diversify across the valuation curve while diversifying across sectors. Flexicap portfolio may have some rerating stocks alongside a decent portion of stable earnings stocks. They may go overweight on sectors where valuations as well as earnings are depressed while going underweight on sectors wherein valuations are looking stretched, and the sector is over owned.
4. Stock level deviation in diversified funds: In case of diversified fund categories like Flexicap funds, sector and stock level deviation from their respective Benchmarks could be steeper than Large cap funds as the Benchmarks are wide for diversified funds, but might be lower than small cap funds and Midcap funds, where the Universe is very large and the space quite unresearched. Active share of sector funds or the extent of being away from their respective sector Benchmark is relatively lower than the active share of diversified funds.
5. Part of Core portfolio: Diversified funds would form part of the long term core portfolio while sector funds allocation should generally be reviewed in the medium term.
Investors must keep in mind that mutual fund investments are subject to market risks, and they must read all scheme-related documents carefully. There are no guaranteed or assured returns under any of the schemes of mutual funds.
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