6 flexi cap mutual funds gave highest returns in the past ten years. Should you invest?

The continued market turmoil has prompted many investors to think if it is worth investing in funds categorized under a particular market cap or investing in stocks dedicated to a particular sector or theme. The fact that some sectors have performed beyond expectations while others have sunk much below than anticipated has caused many investors to now switch to flexi-cap funds.

Unravelling flexi-cap funds

For the unversed, flexi-cap funds fall in the category of equity-focused funds. These funds fall under the category of equity mutual funds, and they have the flexibility to invest in companies of varying market capitalizations, spanning from large-cap to small-cap. While they are required to allocate a minimum of 65 per cent of their assets to equity and equity-related instruments, there are no constraints regarding the upper or lower limits of their exposure to different market capitalizations. This flexibility empowers fund managers to adapt their portfolios to align with their investment perspectives.

To illustrate, in times of market volatility, a manager overseeing a flexi-cap fund may opt to increase their allocation to large-cap stocks. However, when they identify potential growth prospects, they can seamlessly transition their investments towards mid-cap or small-cap stocks. Based on prevailing market conditions, liquidity factors, and valuation evaluations, fund managers can readily make choices regarding their investments across different market capitalization categories. This adaptability often leads to flexi-cap funds delivering superior performance compared to other categories of equity funds over extended periods.

Why invest in flexi-cap funds?

It’s important to note that flexi-cap funds are not immune to market risk. Consequently, their performance can fluctuate, potentially resulting in both gains and losses. Nevertheless, for investors seeking diversification across a broad spectrum of stocks and who are comfortable with some level of return variability, flexi-cap funds can be an attractive choice.

Flexi-cap mutual funds present several potential benefits to investors, such as:

Diversification: These funds allocate investments across a broad spectrum of market capitalizations, effectively lowering risk exposure.

Flexibility: Fund managers can adapt portfolio allocations according to their investment perspectives, enhancing the potential for risk-adjusted returns.

Long-term growth opportunities: With the capacity to invest in companies of all sizes, including those with high growth potential, flexi-cap funds can position themselves for outperformance among various types of equity funds in the long run.

Flexi-cap mutual funds serve as an attractive choice for investors who:

• Possess a long-term investment horizon.
• Are open to embracing a degree of return volatility.
• Seek a diversified equity investment opportunity.

Flexi-cap funds are many, thus, allowing investors a wide range of choices to choose from. Depending on your understanding of finance, your outlook towards the market and investments, and your risk appetite, you may start profiling the various flexi-cap funds available to choose from.

Some investors choose to put their money in only one flexi-cap fund whereas others opt for more than one fund to avail of the benefits of different fund management styles. There is no thumb rule to dictate the number of flexi-cap funds you must have in your investment portfolio. It all depends on how much risk you are willing to assume and obviously, your ability to invest in these funds, be it in a lump sum or through systematic investment plans. 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.