The Complete Guide To Multi-Cap And Flexi-Cap Funds
Investments can help you to acquire wealth over time. The act of investing can be described as payment made towards investment schemes for investing in the market. While some investment schemes are considered safe offered by banks. But, since the returns from those schemes are not that high, a lot of people opt for market investments as they can fetch big returns. One of the many investment options that you can consider for market investments in mutual fund schemes and their different variants. One of the different types of mutual funds is equity funds.
As the name suggests, equity funds are known for directing investments toward equities and their related instruments. One of the alluring features of these funds is that they can help you in fetching high returns. But there is something you need to be aware of before signing up for equity funds, you need to remember that these funds come with a lot of risks. So, you need to have a high-risk appetite for equity investments. When it comes to equity funds, the higher the risk, the higher the returns associated with them. Also, just like in the case of mutual funds, equity funds come with variants. Some examples of different types of equity funds are multi- and flexi-cap funds.
These funds are known for directing investments toward businesses belonging to different market caps and sectors. This provides investors with a chance to enjoy the benefits of all types of equity funds. Numerous investors are known for opting for multi-cap funds because of the advantages that are associated with diversification. Furthermore, they are also known for providing other features such as risk-adjusted returns and professional management.
How do these funds work?
Multi-cap funds are the category of equity funds that don’t come with a defined structure on things like what size and sector of companies they can invest in. Therefore, these funds are known for investing in large-, mid-, and small-cap stocks. It is important to note that the proportion of fund allocation for these stocks could vary. The proportion of fund allocation depends on the fund manager. They thoroughly look at the market conditions and then adjust the proportion of large-, mid-, and small-cap stocks in the portfolio of a multi-cap mutual fund.
What are the key advantages of these funds?
- A key advantage of these funds is the diversification they are known for providing. They are known for allocating funds to businesses with different market caps and sectors. This automatically provides diversification to your portfolio. Simply put, it means that you don’t have to worry about choosing between large-, mid-, or small-cap businesses yourself. Mult-cap funds are known for offering exposure to them all.
- Another advantage of these funds is that they can help you with generating wealth in the long term. Because of the benefits associated with fund diversification, these funds are known for generating inflation-beating returns over time. In case you are someone seeking to grow their wealth, multi-cap funds can be a great investment option.
Just like multi-cap funds above, flexi-cap funds are also a variant of equity funds that are known for investing in companies found across the market capitalisation spectrum. However, they are different from multi-cap funds in one way. Under multi-cap funds, the fund manager is required to stick to the 25-25-25 rule while investing. It means, the manager is required to maintain 25% each in large-, mid-, and small-cap stocks. A flexi-cap fund is known for enabling the diversification of your investment across businesses belonging to different market capitalisations to mitigate risks and thereby lowering chances of volatility. These funds are required to have a minimum of 65% of total assets allocated to equity and their related instruments.
What are the advantages associated with these funds?
- As stated earlier, unlike multi-cap funds, flexi-cap funds don’t come with any restrictions. Thus, a fund manager is free to invest across the market capitalisation.
- They are also known for coming with the ability to harness opportunities regardless of market cap or sector.