Flexi Cap Funds: Timing the market vs. staying invested

By having the flexibility to dynamically allocate money across large, mid, and small cap stocks, flexi cap funds aim to generate potentially better long term returns for investors. However, with this flexibility also comes the temptation to try and 'time' the market based on short term market views. Read on to more about timing the market and staying invested in flexi cap funds difference.

• Table of contents

1. What are flexi cap funds?
2. Why timing the market is difficult in flexi cap funds?
3. Advantage of long-term investing in flexi cap funds
4. In summary - market timing vs flexi cap fund investment
5. FAQ

What are flexi cap funds?

Flexi cap funds are mutual funds that can dynamically manage their portfolio across different market caps (large, mid, small) depending on the fund manager's view of the market and investment opportunities. This allows flexi cap funds to participate across the entire market cap spectrum and switch between large, mid, and small cap stocks.

Some key things to note about flexi cap funds.

• They are not constrained by any market cap bias and can invest a minimum of 65% of their corpus in equity/equity-related instruments without focusing on any particular market cap.
• This flexibility gives fund managers larger scope to choose stocks and helps deliver potentially reasonable long term returns by participating throughout market cycles.

Why timing the market is difficult in flexi cap funds?

Trying to time the market by extensively switching between large/mid/small caps based on short term market movements is very challenging for flexi cap funds. The sectors and stocks within each market cap segment keep rotating and it is impossible to predict short term movements accurately.

• Market sentiments, economic/political situations keep changing frequently which impacts different market caps in unpredictable ways. This makes long term market timing a futile exercise.
• Flexi cap funds may miss out on opportunities in the segments they exit from prematurely if their market timing call goes wrong.
• Staying invested for longer periods allows flexi cap funds to maximise potential gains across sectors and market caps over different market cycles, instead of narrowly focusing on 1-2 caps at any point.
• By relying less on market timing, investors get a well-diversified portfolio with the flexibility to benefit from overall market ups and capture different opportunities as they emerge.

Advantage of long-term investing in flexi cap funds

Staying invested in flexi cap funds for 3-5 years or more helps ride out short term volatility and capture long term wealth creation potential as follows.

• Flexi cap funds can deliver reasonable long term returns by participating in the upside of all market caps without constraints of market cap bias.
• Long term investors benefit from flexi funds' ability to continuously allocate to attractive sectors/stocks emerging across large, mid, and small caps over years.
• Risk of missing out on opportunities is minimised compared to frequently moving between market caps based on unstable short term market views.
• Downside mitigation also increases with flexible, well-diversified portfolios.
• The cost of frequent rebalancing and transaction costs associated with extensive market timing are avoided.
• SIP investing over long periods helps create and maintain wealth through rupee cost averaging during the ups and downs of market cycles.

Therefore, for wealth creation and capturing flexi funds' diverse portfolio advantages, staying invested through different market phases is recommended over trying to time short term market fluctuations.

In summary - market timing vs flexi cap fund investment

While flexi cap funds provide flexibility, extensively timing the market by frequently changing portfolio allocations based on short term market views is difficult and counterproductive. A long term, disciplined approach of staying invested for 3-5 years or more through SIPs allows flexi cap funds to deliver returns by participating across all market cap opportunities and cycles. For investors looking to create wealth through a flexibly managed, well-diversified fund, the Bajaj Finserv Flexi Cap Fund could be a good investment option to consider for the long term. For a detailed scheme information, click here.

FAQs:

If the market remains sideways for long, how will flexi cap funds perform?
Even during periods of sideways market, flexi cap funds have the ability to generate positive returns through prudent stock selection. Their managers can identify pockets of opportunities in specific sectors/styles/caps and dynamically rebalance accordingly to benefit.

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.