India’s market regulator allowed a new category of mutual funds last year—flexicap funds. That move was aimed at helping asset managers after changes in allocations reduced flexibility for multicap schemes.
A multicap plan needs to invest at least half the portfolio in mid and small caps. Flexicap funds are required to invest at least 65% in equities across market capitalisation without any restriction, giving fund managers more leeway.
Flexibility is what makes such funds a core product for any mutual fund investor as they provide the necessary diversification across market caps, said Rajat Chandak, senior fund manager at ICICI Prudential AMC. The asset manager will soon launch a flexicap fund.
“This is important as during downturns, the fund manager can take exposure to large caps and enjoy their relative safety, while over the longer term, a higher exposure to mid and small caps will help generate better returns,” Chandak said during The Mutual Fund Show.
ICICI Prudential Flexicap Fund has a mandate to invest up to a maximum of 50% in mid and small caps, he said. This would enable the fund generate risk-adjusted returns as the exposure to mid and small caps is capped, according to Chandak.
Prableen Bajpai, founder of wealth manager FinFix Research and Analytics, said while flexicap funds should be part of the core portfolio for any investor, there are enough existing options to choose from as opposed to a new fund offer. If ICICI Pru’s scheme proves itself through a cycle or two, then investors can take exposure to it, she said, suggesting PPFAS Flexicap Fund and Canara Rebeco Flexicap Fund as “good choices at the current juncture”.
Bajpai also suggested equal-weighted passive investing strategy. It assigns equal weight to stocks in an index fund irrespective of market capitalisation. Three Indian indices offer such benchmarks.
Nifty 50 Equal Index
Nifty 100 Equal Index
NYSE FANG + Index (global)
And five schemes track these indices.
Principal Nifty 100 Equal Weight Fund
Sundaram Smart NIFTY 100 Equal Weight
DSP Equal Nifty 50 Index
Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund
Mirae Asset NYSE FANG + FOF
These schemes help reduce sectoral allocation and gives an investor a good mix of exposure to growth and value, Bajpai said. She suggested DSP Equal Nifty 50 Index Fund.