Investors who are unhappy with their existing investments should reevaluate their investment portfolio. Financial planning is essential for anyone who wants to understand which investment scheme is feasible for their income needs. With financial planning, one can determine their life’s urgent as well as long term financial goals, thus allowing the investor to get a clear perspective on how to diversify their portfolio. Investing is essential for anyone who wishes to create wealth over the long term. Investors who carry a risk appetite and are willing to take risks with the hope of earning decent capital appreciation in the long run, can consider investing in mutual funds.
A mutual fund is a pool of professionally managed funds that invest in a diversified portfolio of securities. Mutual fund houses collect money from investors and invest this pool of funds to achieve a common investment objective. A mutual fund might invest across various money market instruments and asset classes. It all depends on the nature of the scheme, the risk profile it carries, and its underlying benchmark. It is the duty of the fund manager to help the mutual fund scheme outperform by executing an established investment strategy. Those who are new to mutual funds or investing generally ponder over when would be the right time to invest in mutual funds. Any time could be the right time to invest in mutual funds if you start a monthly SIP in mutual funds. A Systematic Investment Plan is a new and convenient way of investing in mutual funds. You can invest in mutual funds via SIP to target your long term goals.
But before starting a SIP in mutual funds, investors must know which mutual fund scheme to invest in. If you want to invest in equity funds that spread their portfolio across market caps, then you can consider investing in either multicap funds or flexicap funds.
What is a multicap fund?
A multicap fund is an open ended mutual fund scheme that diversifies its portfolio across the mid cap, small cap, and large cap markets. As per market regulator SEBI (Securities and Exchange Board of India) guidelines, of its total assets, a multi cap fund must invest a minimum of 25 percent each in equity and equity related instruments of large cap, mid cap, and small cap companies. The remaining 25 percent of the portfolio can be allocated to fixed income securities or other equity related instruments and is totally up to the fund manager managing the fund.
What are flexi cap funds? How are they different from multi cap funds?
Flexi cap fund is a new product category launched by SEBI in 2020 under the equity schemes gamut. These are open ended schemes that invest across market capitalization including stocks of companies belonging to mid cap, small cap as well as large cap markets. But what distinguishes flexi cap funds from multicap funds is their asset allocation strategy. While multicap funds are confined to having minimum exposure of 25 percent to all three asset classes, there are no such restrictions on flexi cap funds. Here, the manager must only ensure that the flexi cap funds have an overall exposure of 65 percent minimum to all three market caps. This fund has the flexibility to shift its portfolio across company stocks belonging to various market capitalizations.
Where should you invest?
Both multicap and flexi cap funds invest across market capitalizations. However, since they only differ in asset allocation strategy, one might find it difficult to determine which scheme is ideal for their goals. Investors must consult their financial advisor who might help them in determining which of the two schemes is more suitable for them.