If you are worried or struggling to keep up with a volatile market, the flexi-cap mutual funds may provide you the stability and a better chance of grabbing inflation-beating returns.

If you have been investing in the stock market, you would know volatility is a constant threat to your investment. It leaves us with limited options to circumvent the market’s boom-and-bust cycles that are endemic and almost inescapable, regardless of the geographic boundaries. Fortunately, some strategies and funds work better against these periodic highs and lows. Flexi-cap mutual funds are one of them and possibly have a better chance to withstand volatility as in the case of systematic investment plans (SIPs) when employed as a strategy. But it can work in your favor only if you have a long-term investment horizon.

So, why invest in flexi-cap mutual funds?

These open-ended funds are vigorous and target companies across their market capitalizations. At least 65 percent of their corpus is invested in large-cap, mid-cap, and small-cap stocks, making the bulk of their equity-related investments. Though they bear similarities with multi-caps, the flexi-caps do not have any limitations on allocations within the valuation buckets. This makes them more agile and opportunistic when it comes to portfolio restructuring in every boom or bust situation, considerably improving their chance to fight off volatility. In addition, fund managers have the freedom to invest across sectors based on the market situation. The fund’s diversified portfolio provides protection from an unexpected decline in a particular asset or segment due to short or mid-term volatility. For instance, fund managers can lower the fund’s exposure to risky assets or industry segments to a bare minimum in the event of a market correction. On the other hand, its peers, like large, mid, and small-cap funds, must invest a major amount of their corpus in the companies of their respective segments. Flexi-caps thus provide enormous investing flexibility, depending on the performance of the large, mid, or small-cap segments. Typically, flexi-cap funds track the NIFTY 500 TRI or the NIFTY 50 TRI.

Who Should Invest In Flexi-cap Funds?

Given the unique advantages of flexi-caps, they are ideal for medium-term to long-term investors or those who can wait at least five to seven years for wealth growth. Once selected, the flexi-caps can possibly provide robust inflation-beating returns, with the ups and downs having been taken care of. However, investors must be careful and know their risk tolerance before picking any fund. For instance, flexi-cap plans can be conservative sometimes, and returns may not be satisfactory. So, investors must go through all the pros and cons in the flexi-cap mutual fund universe and the fund managers’ performance because, like other funds, they also face the risk of volatility, economic downturn, and geopolitical tensions. In addition, like any other equity funds, flexi-cap funds are taxed as equity-oriented schemes under the Income-tax Act, 1961. Profits made within a year are taxed 15 per cent flat, regardless of the slab rate. If it is more than 12 months, profits are taxed at 10 per cent after the initial exemption of Rs 1 lakh related to all long-term capital gains.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.