These flexi-cap equity mutual funds have given 30-34 times returns in the last 20 years

Investing in mutual funds is usually considered a wealth-building strategy. Among the diverse options available to investors, flexi-cap funds hold a unique position. But should one really invest in them? What returns can one expect? Let’s delve into these questions. 

Flexi-cap funds invest in stocks of companies across market capitalisation. Unlike large-, mid-, or small-cap funds that are restricted to investing only in a particular segment based on the companies’ size, flexi-cap funds can invest in any company without any constraints. This provides the fund manager with the flexibility and discretion to move assets between smaller and more significant companies depending on market conditions. In these funds the minimum exposure to equities is limited to 65 per cent.  

Watch now: After losing to Afghanistan by 69 runs in a shocker, England becomes first team to lose against every Test playing nation in World Cup history

Watch now: Watch: From a dress that changes designs as showcased in Adobe’s interactive digital dress to Nothing Apparel’s ‘uniform’, Know all about how tech companies are stepping up innovation in Fashion

This inherent advantage of asset allocation provides flexi-cap funds an edge over other categories. A fund manager equipped with the skill to forecast market trends can allocate assets to capture the upside of markets while being shielded from downward movements to an extent. 

The latest report from FundsIndia shows flexi-cap funds that have given 30-34 times return in the last 20 years ). For example: Aditya Birla Sun Life Flexi Cap Fund, Franklin India Flexi Cap Fund and HDFC Flexi Cap Fund have given the return of 31.4 times, 32 times and 34.3 times over the period of 20 years (as on 30^th September 2023.  

Compared with flexi-cap, funds in large-cap category such as Franklin India Bluechip and HDFC Top 100 Fund have given the return of 21 times and 29 times over the period of 20 years. Mid-cap funds, which have recently seen a rally, gave higher returns. For example: Franklin India Prima Fund and Nippon India Growth Fund gave the return of 35 times and 51 times. 

The success of flexi-cap funds depends largely on the fund manager’s proficiency in recognising market trends and making the right calls. Thus, while the potential to earn higher returns is apparent, it also carries a greater risk if these calls go incorrect. 

Also read: Insurers on edge: Will Israel-Hamas conflict result in higher insurance premium?

Also read: Real estate: Can you get a home loan on an unregistered flat?

Also read: SIP vs lump sum: Which investment strategy wins the race for middle-class investors?

Historical returns from flexi-cap funds indicate a worthwhile potential. In the shorter duration of five years flexi-cap funds have given average return of around 14-17 per cent, beating inflation by good margin. However, investors should note that mutual fund investments are subject to market risks, and past performance is not indicative of future results. 

Deciding whether to invest in flexi-cap funds mainly comes down to your risk tolerance and investment horizon. They are undoubtedly an excellent avenue for investors willing to take a moderate-to-high risk for potentially higher returns. They can also save you from the hassle of constantly shifting between various categories of funds in response to changing market conditions. However, make sure to thoroughly research and consult with a financial advisor before investing. 

To summarise, flexi-cap funds offer the possibility of substantial returns, coupled with the convenience of flexible asset allocation. However, they are also linked with a significantly competitive degree of risk. Therefore, they are suitable for informed investors with a high-risk tolerance and longer investment horizon.