Investigating the Value of Flexi Cap Funds: Are They a Shrewd Investment Choice?
In the world of mutual funds, Flexi-Cap funds have been a popular choice for investors seeking growth and flexibility. However, there are alternatives that may offer better returns or diversification across market capitalizations. One such alternative is Multi-Cap mutual funds, and another is Multi-Asset Allocation funds.
Multi-Cap funds provide a structured exposure to large-cap, mid-cap, and small-cap stocks in more defined proportions than Flexi-Cap funds, potentially offering better risk diversification across market caps. According to SEBI's investment mandate, Flexi-Cap funds invest in stocks across market caps and in any proportion, but historically, they have maintained a healthy large-cap bias.
On the other hand, Multi-Asset Allocation funds diversify not only across equities of different market caps but also across asset classes such as debt, gold, international equities, infrastructure trusts, and real estate investment trusts (REITs). These funds can give investors broader diversification beyond just equity market caps, though they may sacrifice some flexibility since the fund manager controls asset allocation.
In terms of returns, some Flexi-Cap funds have delivered high returns. For instance, Invesco India Flexi Cap Fund had over 26% returns over the last 3 years, and others like Motilal Oswal and HDFC Flexi Cap Funds delivered over 22% SIP returns. However, among pure equity alternatives, Multi-Cap funds are often recommended as a second core fund after Flexi-Cap for long-term growth due to their balanced exposure.
To help you make an informed decision, here's a comparison of the key characteristics of Flexi-Cap, Multi-Cap, and Multi-Asset Allocation funds:
| Fund Category | Key Characteristics | Diversification Focus | |---------------------------|--------------------------------------------------|-------------------------------------| | Flexi-cap funds | Flexible allocation across market caps | Market caps and sectors | | Multi-cap funds | Structured exposure to large, mid, small caps | More balanced across market caps | | Multi-asset allocation funds | Invest across equities, debt, gold, and others | Across asset classes and markets |
If you seek better diversification than Flexi-Cap funds, consider combining Multi-Cap funds or Multi-Asset Allocation funds in your portfolio alongside Flexi-Cap funds.
Popular Flexi-Cap funds with strong returns include Parag Parikh Flexi Cap Fund, Quant Flexi Cap Fund, and HDFC Flexi Cap Fund. However, Multi-Cap funds might provide more stable diversification by design. Multi-Asset funds can further diversify your risk though with some trade-off in flexibility.
It's worth noting that Large & Mid-Cap funds invest at least 35% each in large and mid-caps, with a lower allocation to small caps. Conversely, the average allocation to large caps for the 10 smallest Flexi-Cap funds is around 64%. Over the last 10 years, as of September-end 2023, the Nifty 50 has gone up by 14.26%, while Midcap 150 TRI and Nifty Smallcap 250 TRI delivered annual returns of 22.3% and 20.9%, respectively.
Investing in a large-cap, a mid-cap, and a small-cap fund separately can provide a customized Flexi-Cap fund with periodic rebalancing. However, this approach may require more active management and may not offer the same level of flexibility as Flexi-Cap funds.
In conclusion, while Flexi-Cap funds remain a popular choice for many investors, understanding the characteristics and potential benefits of Multi-Cap and Multi-Asset Allocation funds can help you make informed decisions about your investment portfolio. As always, it's recommended to consult with a financial advisor to determine the best strategy for your individual financial goals.
Due to the structured exposure to large-cap, mid-cap, and small-cap stocks, Multi-Cap funds might offer better risk diversification than Flexi-Cap funds. In contrast, Multi-Asset Allocation funds not only diversify across market caps but also across asset classes, potentially extending diversification beyond equities.
