Debunking the common myths and misconception of flexi cap funds

Mutual funds are an affordable and convenient investment method. However, many people stay away from investing due to the numerous misconceptions around mutual funds. One area often shrouded in myth is flexi cap funds. These versatile investment instruments offer unique advantages, but their flexible nature also fuels misinformation.

Let's cut through the noise and talk about some key myths and facts about flexi cap funds.

• Table of contents

1. Overview of flexi cap funds
2. Common myths and misconceptions about flexi cap funds

Overview of flexi cap funds

Flexi cap funds offer a unique and versatile option in the mutual fund world. Unlike other funds restricted by market cap (the size of companies they can invest in), flexi cap funds have the freedom to invest anywhere – from established large-cap companies to potential small-cap companies. This flexibility allows them to optimise the return potential and mitigate risk in two ways:

Broader opportunities: Flexi cap can chase growth wherever it pops up, whether it's in a booming small-cap sector or a temporarily undervalued large-cap giant. This flexibility gives them an edge over funds limited to just one market segment.

Diversification built-in: By investing across the market cap spectrum, flexi cap funds hold a mix of companies with different risk profiles. This spread helps buffer against significant losses if one segment stumbles, providing some mitigating element to the portfolio.

Bajaj Finserv Asset Management Limited presents the Bajaj Finserv Flexi Cap Fund, an open-ended equity scheme designed to invest across large cap, mid cap, and small cap stocks. The fund's primary goal is to foster long-term capital appreciation by predominantly investing in equity and equity-related instruments across different market capitalisations. With the S&P BSE 500 TRI as its benchmark index, this scheme caters to investors seeking wealth creation and capital appreciation over the long haul. The fund offers both direct and regular plans to suit diverse preferences. However, it's important for investors to acknowledge the high-risk nature of their principal investment. For a detailed scheme information, click here.

Common myths and misconceptions about flexi cap funds

Here are some of the common flexi cap funds myths -

flexi cap funds are riskier: While their flexibility allows for investing in potentially volatile small-caps, their ability to also hold relatively stable large-caps helps balance the risk profile. Diversification across market segments acts as a potential mitigating factor.

They're just for seasoned investors: Their adaptability and potential for long-term growth make them suitable for a wider range of investors, including those with moderate risk appetites. However, understanding their dynamic nature and setting realistic expectations is crucial.

They guarantee high returns: While flexi cap funds offer the potential for good returns over the long term due to their flexibility, they don't guarantee them. Past performance is not indicative of future results, and market fluctuations can impact returns.

They're the same as multi cap: While both invest across market capitalisations, multi cap funds have a fixed allocation to each market cap. In contrast, flexi cap funds have flexible allocations depending on the fund manager’s market outlook.

Conclusion

Flexi cap funds offer a good investment option, but understanding their true nature and debunking common misconceptions is key to making informed choices. By embracing their flexibility, appreciating their risk-balancing potential, and setting realistic expectations, you can leverage these versatile funds to navigate the market and achieve your financial goals. Remember, thorough research and professional guidance can be invaluable in navigating the world of flexi cap funds.

FAQs:

Can flexi cap funds provide relatively stable returns?

While flexi-cap funds offer the potential for a growth over the long term, they are not known for their stability in the short to medium term. Their dynamic approach may cause fluctuations in performance based on market conditions.

How do flexi cap funds manage market volatility?

Diversification across market caps is their key weapon against volatility. By holding a mix of large-cap stability, mid-cap growth potential, and small-cap dynamism, they spread the risk across companies with different sensitivities to market movements.

What is the ideal investment horizon for flexi cap funds?

Given their relatively volatile nature, flexi-cap funds are ideally suited for long-term investors with a horizon of 5 years or more. This allows them to ride out market fluctuations and benefit from the potential for compounded growth over time.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.