A flexi cap mutual fund is a mutual fund that would by
mandate need to invest a minimum of 65% into equity at all times.
The remaining 35% can either be invested in debt,
international equity, cash or any of the above caps or all.
This 65% is only minimum which can even go up to
100% in case the fund manager so desires.
Whatever the allocation is between 65% to 100%,
there is no restriction with relation to large cap, mid cap or small cap
stocks.
Basically, the fund would be run as how erstwhile multicap
mutual funds were being run.
What is a Focused mutual fund?
Focused mutual funds have a concentrated portfolio and do
not invest in more than 30 stocks.
There are less diversified than flexi cap mutual funds but
also have more potential for higher returns.
Despite the limitation of 30 stocks, certain focused mutual
funds invest in even fewer stocks than that.
Invesco Focused fund invests in only 20 stocks whereas Axis
Focused fund invests in only 25 stocks.
Funds besides focused funds also at times apply this
investment strategy even though there are under no obligation to do so.
What is the difference
between Flexi cap mutual fund & Focused fund?
Diversification
A flexi cap mutual fund is more diverse than a focused fund merely
because it can hold a higher number of stocks, there is no restriction as such.
A focused fund on the other hand can hold 30 stocks or less.
There is no restriction as such with regards to categories
so both a flexi cap mutual fund as well as a focused fund can have investments
across large, mid and small cap stocks.
Risk
A Focused fund has risks on the higher side since it has a
highly concentrated portfolio.
A flexi cap mutual fund on the hand can hold a higher number
of stocks and therefore the risk is more diversified.
Role of a Fund Manager
The role of a fund manager becomes more significant in a
focused fund since there is a limit with regards to holdings.
This is case with any concentrated portfolio.
In a flexi cap mutual fund the fund manager has the liberty
to spread the risk across a higher number of stocks in case of market
volatility.
The fund manager of a focused fund does not have the same
liberty and therefore his role becomes all the more important.
Click here to read on How to invest in mutual funds in a falling market
Advantages of a Flexi
cap mutual fund
Flexibility
A fund manager has the flexibility to increase the
allocation to large cap stocks during a volatile market and so on.
Based upon the prevailing market conditions, a fund manager
can move across market caps and sectors.
Diversification
A flexi cap mutual fund has no restriction with regards to
market caps unlike a large, small, mid and a multi cap fund.
Therefore a flexi cap mutual fund can be diversified across
all market caps.
Disadvantages of a
Flexi cap mutual fund
Large cap bias
Most flexi cap mutual fund schemes tend to be large cap
biased.
This therefore leaves little to no reason to pick it over a
pure large cap fund, this of course does not apply to flexi cap funds that are
not large cap biased.
No uniformity
Since there is no restriction with regards to markets caps,
a flexi cap mutual fund can diversify itself across all market caps.
Therefore every fund manager will have their own outlook
therefore making your choice of fund all the more important.
Advantages of a
focused fund
High returns
A focused fund means a highly concentrated portfolio.
So if suppose the concentrated list of stocks go on an
upswing, there are chances of higher returns say opposed to a flexi cap mutual
fund which is far more diversified.
Disadvantages of a
focused fund
Highly volatile
The other side of having a highly concentrated portfolio is
opening itself to the risk of the calls of the fund manager not going according
to plan.
Therefore is little cushion in such a case since a focused
fund does not have the flexibility of a flexi cap mutual fund.
Higher dependency on the fund manager
A focused fund can at maximum keep 30 stocks, in certain
cases even lower.
Since it is a highly concentrated portfolio, the role of the
fund manager in stock picking becomes all the more important.
Compared to other diversified categories, the role of a fund
manager has higher significance since it requires a more hands on approach.
For portfolio enquiries, email us with your doubts at info@themutualfundguide.com
