To invest in the market, you need first opt for an investment scheme. One of the investment schemes that a lot of investors in India are known for preferring is mutual funds. However, an important fact to remember about mutual funds is that different variants of these schemes are available as an option. One of these different variants of mutual funds is equity funds. In accordance with the name, these are the mutual funds that are known for allocating funds to equities and their related securities. While it is true that equity funds are known for providing investors with a chance to earn higher returns, it is important to make note of the fact that these schemes come with a lot of risks. So, before opting for these schemes, please determine that you have a high-risk tolerance.
Another important fact to remember about equity funds is that these funds also have their variants. Some of the different types of equity funds are multi-cap funds and Flexi-cap funds. If you are interested in learning what flexi-cap and multi-cap funds are, listed below are the details about these funds:
Flexi-cap funds are the type of equity funds that are known for investing in companies found across the market capitalisation spectrum, i.e., large-, mid-, and small-cap stocks. A flexi-cap fund enables an investor to diversify their investment across businesses belonging to different market capitalisations to mitigate risks and for lowering chances of volatility. Flexi-cap funds are required to have a minimum of 65% of total assets allocated to equity and their related instruments.
What are the key advantages of flexi-cap funds?
- Fund managers are free to invest across the market capitalisation. Unlike multi-cap funds that are required to follow the 25-25-25 rule. The 25-25-25 rule means, you are required to maintain 25% each in large-, mid-, and small-cap stocks. Simply put, in multi-cap funds, there are some limits imposed for investing. Conversely, in flexi-cap funds, there are no such restrictions.
- These funds come with the ability to harness opportunities regardless of market cap or sector.
Equity mutual funds are known for providing investors with the opportunity to earn higher returns and diversify their investments. Each variant of these mutual funds is known for coming with its benefits. A large-cap fund can provide stability to your portfolio, mid-cap schemes can benefit you from their growth opportunities, and small-cap funds are known for offering investors the possibility of higher returns, but they are known for coming with higher risks. However, there is a variant of equity funds that is known for standing apart. The said variant is multi-cap funds. Multi-cap funds are known for investing in businesses of different market caps and sectors, providing investors with a chance to enjoy the benefits of all types of equity funds. A lot of investors are known for choosing multi-cap funds because of the benefit associated with diversification. Also, these funds are known for providing other features like risk-adjusted returns and professional management.
What are the key advantages associated with multi-cap funds?
- One of the key advantages of multi-cap funds is the diversification it is known for providing. They are known for investing in businesses with different market caps and sectors, thereby automatically providing diversifying your portfolio. It means that you don’t have to choose between large-, mid-, or small-cap businesses yourself. Mult-cap funds are known for offering exposure to them all.
- Another major benefit of these funds is that they can help with generating wealth in long term. Thanks to the benefits associated with diversification, these funds have generated inflation-beating returns over time. If you are someone seeking to multiply their wealth, multi-cap funds can be a great option.
Which one to choose at times of market instability?
One thing to remember about investing in the market is that all investments are risky. That’s because the market performance is cyclical. Meaning, that today the market might be performing well, but that does not mean it will be performing well tomorrow. So, if you are wondering whether to choose flexi-cap or multi-cap funds, the ideal answer will be to choose the option that suits you the most. That’s because both investment options can help you with long-term wealth regardless of market conditions.