3 Reasons Why Flexi Cap Funds Build a Robust Portfolio

Equity Fund

In this article you will read about

  • What makes for a flexi-cap fund?
  • Suitability of flexi cap funds for all types of investors
  • Positioning of a flexi cap fund in a portfolio

The role of an all-rounder is indispensable in sports and several other professions. The flexi cap fund fits the role of an all-rounder with its suitability in every market condition. This category of fund follows a broad equity diversified approach with no limits on exposure to stocks based on market capitalisation. In effect, investment decisions are based completely on market movements and the approach adopted by the fund manager.

Go anywhere approach

Fund managers of this fund have the freedom to move across market capitalisation to mitigate investment risk with a broad diversified portfolio, making the fund suitable for any state or condition of the market. The portfolio of these funds is well diversified across market capitalisation, which allows the fund manager to take advantage of changes in the stock markets. However, investors would be better off by checking the investment approach that a flexi-cap fund would follow to understand the nuances of stock selection in relation to changing market conditions.

Documents pertaining to the scheme may detail the stock selection approach adopted. This go-anywhere approach provides diversification benefits and aims to reduce overall portfolio volatility. Moreover, exposure to mid-and-small-caps can potentially create alpha, even as exposure to large-caps can bring in an element of stability.

Quick to adapt

The flexibility to move across market capitalisation, sectors and investment approach (value or growth) helps flexi-cap funds to optimally diversify the portfolio and generate risk-adjusted returns. Unlike many other equity diversified fund categories which need to follow a market capitalisation defined allocation-based portfolio which requires funds to maintain their exposure to different market capitalisation; fund managers are free to move from small-caps to mid-caps or large-caps during the down phases of the market, to mitigate portfolio volatility.

Core Portfolio holding

Investors with long-term goals could consider flexi-cap funds as core portfolio holdings for their ability to adapt to changing market conditions. The performance of these funds is a mix of the stability provided by large-cap exposure complimented by growth opportunities offered by mid and small caps over the long term. Choose a fund in this category that has a proven track record over different market cycles after consulting with your financial advisor to take advantage of a fund category that could work for every type of investor – beginner as well as seasoned.

Next steps

  • Understand the working of flexi cap funds
  • Include a flexi cap fund in your investment portfolio
  • Track and review the performance of your investment

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