Flexi Cap Funds- Key attributes that you must know
Flexi-cap funds are not restricted to making investments of a fixed amount of market capitalization in companies. This type of mutual fund offers greater diversification possibilities and investment choices. Market capitalization is an effective way for mutual funds to select companies worth investing in. The outstanding shares of a company’s dollar market value are the market capitalization. The market capitalization is also called “market cap”. Investors can calculate the market cap by multiplying the outstanding shares of a company by the market price of a single share (current price). It is important to show the size of a company using the market capitalization as a basic determinant of other several characteristics of a company. The different types of market cap companies are as follows:
Small-cap companies are young which serves new industries and niche markets. Investments in these companies are regarded as riskier because of their age and the size and markets they serve. In short, smaller companies are said to have fewer resources which makes them more sensitive to economic fluctuations.
Mid-cap companies carry a higher risk but attract investors because of their growth potential. These companies are ever-expanding as they offer good scope.
Large-cap companies have been around for the longest period. This has made them major players and among the well-established industries. Large-cap companies do not promise huge returns by investing in it for a short period. These companies yield consistent increase in dividend payments and share value with time.
Investors must keep the key attributes in mind before choosing flexi-cap funds. Let us look at the key attributes of the Flexi-cap fund:
The equity fund investment can be classified as a Flexi-cap fund if at least 65% of the fund’s assets are maintained in an equity fund. This is the only regulatory guideline to be followed by the Flexi-cap fund. The SEBI changed the mandate for Multi-cap fund that requires an investment of a minimum of 25% of the corpus in each small-cap, mid-cap and large-cap. Fund managers also put forward their concern of risks involved in making investments in small and mid-cap stocks.
The possible risks of the multi-cap fund's mandate have allowed the existing schemes to turn into Flexi-cap fund. The change needs a 30-day window to leave without any load implication on exit.
Investors require complete flexibility in having holdings in a company or owning a company without any restrictions on allocation to any market cap.
The investors of the Flexi-cap fund allocated under the large-cap can offset the volatility. While investors who have moderate to high five years investment horizon and risk-taking appetite should consider investing in the scheme.
As per the recent report released by the RBI, the economy of India has been charted into recession. The Flexi-cap fund is most suited for equity fund investors because the task of stock selection goes to the fund manager. The multi-cap funds are focused on small-cap stocks while the Flexi-cap funds are inclined towards large-cap allocation.
