Mutual funds are a smart investment choice to increase your wealth and reach your financial objectives. However, with many options available in the market, choosing the right funds for your investment portfolio can be overwhelming.
When it comes to selecting mutual funds, two options that often arise are flexi-cap funds and multi-cap funds.
What are flexi-cap funds?
Flexi-cap funds are mutual funds that offer investors the flexibility to invest across companies of various market capitalisations. In other words, the fund manager has the freedom to allocate the fund’s assets in companies of any size, ranging from large-cap to mid-cap and small-cap stocks. This allows the fund to adapt to market conditions and invest in companies with different growth potential.
What are multi-cap funds?
Multi-cap funds, on the other hand, are mutual funds that invest in stocks across market capitalisations. These funds typically have a diversified portfolio that includes a mix of large-cap, mid-cap, and small-cap stocks. However, unlike flexi-cap funds, they have a predefined allocation strategy. The asset allocation is based on the fund manager’s market conditions and opportunities assessment.
How to choose between flexi-cap funds and multi-cap funds?
Investment objectives:
Consider your investment objectives before choosing between these funds. If you have a higher risk tolerance and aim for potentially higher returns, flexi-cap funds may be suitable. However, multi-cap funds can be a good choice if you prefer a more balanced approach with moderate risk.
Risk appetite:
Evaluate your risk appetite as it plays a vital role in determining the right mutual fund for you. Flexi-cap funds are relatively more volatile due to the flexibility in asset allocation, making them better suited for investors comfortable with market fluctuations. Conversely, multi-cap funds offer relatively more stability, making them suitable for investors seeking a balanced risk-return profile.
Time horizon:
Consider your investment time horizon. Flexi-cap funds can be beneficial for long-term investors who can stay invested for an extended period, as the flexibility allows the fund manager to optimise returns over time. Multi-cap funds can be suitable for both short-term and long-term investors due to their diversified nature.
Market conditions:
Assess the prevailing market conditions before making a decision. Flexi-cap funds can adapt to different market cycles, making them suitable for investors who want to capitalise on market opportunities. Multi-cap funds can also navigate market conditions well, but their predetermined allocation percentages might limit the fund manager’s flexibility during extreme market situations.
Track record and fund manager expertise:
Examine the fund’s track record and the fund manager’s expertise. Look for consistent performance over different market cycles. Analyse the fund manager’s investment strategy, research capabilities, and experience in managing similar funds. This information will provide insights into the fund’s potential to deliver consistent returns.
To wrap up
Choosing between flexi-cap funds and multi-cap funds requires a thorough understanding of your investment goals, risk tolerance, and market conditions. Assess your financial goals and consult with a financial advisor if needed to make an informed decision. Diversifying your investments across different asset classes is essential for long-term wealth creation and risk management.
