A flexi cap fund may help in wealth creation
Lock-down restrictions are easing across the country following the reduction in covid-19 cases. There is a sharp recovery in the economy and the stock market outlook is positive. Domestic as well as foreign institutional investors are investing diligently in the stock market. Markets are expected to remain volatile in the near term but investors should consider investing in the equity market from a long-term perspective. Though equity as an asset class has the potential to deliver good returns in the long term yet it possesses risk specially in short term. No wonder that investors should have fair knowledge and access to research to make a profit in the stock market, but for those who have limited knowledge there are always mutual funds. It is important to note that not all mutual funds are alike as they are divided into various categories based on the underlying assets in their portfolio.
About flexi cap category
Based on the market cap of a company it is classified as large, mid, or small cap. As per SEBI guidelines, a flexi cap fund is an open ended dynamic equity scheme investing across large cap, mid cap, smallcap stocks. Schemes in this category will have minimum investment in equity and equity-related instruments 65 o per cent of total assets. The flexibility to invest across the market cap allows the fund manager to rebalance the portfolio periodically according to the market movements, thereby limiting the risk and maximizing the profit.
Importance of flexi cap category
Between the year 2009and 2013, the Nifty 100 TRI, an index of large cap stocks, delivered a return of 131 per cent, the Nifty Midcap 150 TRI delivered 150 per cent and the NiftySmall Cap 250 TRI delivered a handsome return of 112 per cent. The returns were86 percent, 194 percent, and 203 per cent respectively between the year 2014and 2017. On the other hand, if we talk about a phase between the year 2018 to2020, the large cap index registered a profit of 34 percent and the mid-cap index 11 percent but the small cap index registered a loss of 14 percent. This shows that stocks with different market caps outperform others at different times. Large cap, mid cap and small cap funds majorly have large cap, mid-cap, and small cap stocks in their respective portfolios. Whereas flexi cap funds are well diversified as they can invest across the market cap and across the sectors. Recently Mahindra ManulifeMutual Fund has launched a new fund offer (NFO) – Mahindra Manulife Flexi Cap Yojna. According to Mahindra Manulife Mutual Fund they have developed an internal investment framework known as GCMV for fair valuation of stocks. Often shares are traded at prices higher than their actual value. Higher the gap, higher is the risk because any downside correction will have greater impact if the gap is wider. The GCMV framework will help in estimating valuation gap between fair valuation and market price of stock and thus offer margin of safety. The minimum ticket sizeis Rs 1000. This fund is suitable for lump sum investment as well as SIP. Investors expecting wealth creation with an investment horizon of five years and more can consider investing in this scheme.
