Reviewed by Sep 30, 2020| Updated on
Flexi-cap funds are those funds which invest in companies across the market capitalisation spectrum, i.e. large-cap, mid-cap, and small-cap stocks. These funds invest in the stocks of all the large-cap, mid-cap, and small-cap companies.
A flex-cap fund allows investors to diversify their investment portfolio across companies of different market capitalisation, mitigating risk and lowering volatility. They are also referred to as diversified equity funds or multi-cap funds.
Unlike mid-cap or small-cap funds where the funds focus on stocks based on market capitalisation, flexi-cap funds can invest in any company irrespective of the company's market capitalisation.
The fund manager assesses the growth potential of various companies regardless of its size and invests the money across various market segments and companies.
Flexi-cap funds offer a diversified portfolio due to which the fund balances the risk and return aspects pretty well. These funds are also known to deliver steady returns even during times of a bear market phase.
Also, the fund manager can choose to assess the fund allocation and switch between different companies and sectors depending on the performance from time to time.
For example, if the fund manager learns that a particular market segment which he/she had invested in has turned unattractive over time, the fund manager can change the allocation to an alternate segment which has been performing well lately. This gives investors the dual benefit of not only investing in the best-performing stocks but also the option to exit from the unattractive ones.
Market capitalisation plays a determinant role when choosing the companies to invest in mutual fund houses. Not only does market capitalisation show the size of a given company but also other various characteristics which investors look into, such as the track record, growth potential, and the risk inherent to these companies.