Risk-return component in flexi-cap funds is well-balanced as fund managers take advantage of investment possibilities and market capitalisation
After the market regulator introduced flexi-cap schemes and fund houses aligned their multi-cap schemes, investors are increasingly pouring money into this category. In July, fund houses mopped up Rs 11,508 crore in flexi-cap funds. Of this, ICICI Prudential Mutual Fund’s new fund offer (NFO) mobilised Rs 9,808 crore. Nippon India Flexi-Cap Fund has collected Rs 2,860 crore through NFO this month.
The assets under management of flexi cap funds soared to Rs 1.93 lakh crore as an improving investor sentiment, driven by a surge in the markets and falling interest rates, have attracted new investors in search of high returns.
Flexi-cap funds are open-ended dynamic equity schemes investing across large-cap, mid-cap and small-cap stocks to diversify their investment portfolio. The minimum investment in equity and equity-related instruments will be 65% of total assets. These funds help in mitigating the risk and lower the volatility in the portfolio. The introduction of flexi-cap funds by Securities and Exchange Board of India (Sebi) last year came as a big relief to fund managers of multi-cap funds as the regulator’s September 2020 directive prescribed a minimum 25% allocation to large-, mid- and small-cap stocks each.
After the introduction of the flexi-cap scheme, most multi-cap funds have now switched to this category to retain their original portfolio characteristics. It helps fund managers to invest freely across market capitalisation, assess the fund allocation and switch between companies and sectors depending on the performance from time to time. Experts say investors should stay invested in a flexi-cap fund for 3-5 years and the risk-return component in flexi-cap funds are well-balanced as fund managers take advantage of investment possibilities market capitalisation.
Equity mutual fund gains
Retail investors continue to invest in equity mutual funds as net inflows of Rs 22,584 crore in July was highest since April 2019. The inflows in equity funds were aided by new fund offers which mopped up Rs 13,709 crore in the month. In fact, the trend of positive inflows into equity mutual funds has continued for the fifth consecutive month in July.
Arun Kumar, head of research, FundsIndia, says a lot of investors who have accumulated higher savings in the last year due to lower spending and were staying on the sidelines are getting back. “The decline of the second wave, strong recent returns from equities, and the stability of the markets despite the second wave have added to investor comfort and confidence,” he says.
There has been a steady increase in the systematic investment plan (SIP) flows. The SIP contribution in July was Rs 9,609 crore, an all-time high. The industry registered 23.79 lakh new SIPs in the month, the highest ever registration. The total SIP accounts in the industry rose to 4.17 crore as on July 31 this year from 3.27 crore during the same month last year, indicating retail investors are participating in the equity rally through mutual funds.
Arbitrage funds remain favourable
Arbitrage funds reported net inflows of Rs 14,924 crore in July, a multi-year high. In June, this category mopped up Rs 9,059 crore. Between January and July it mopped up Rs 49,106 crore. Arbitrage funds leverage the price differential between equity shares in the cash market and in the stock futures market and generate returns by harnessing the price differential between the two as they buy in the cash market and sell in the futures market. Fund managers are able to handle stock market volatility efficiently over a medium term horizon in these funds. Arbitrage funds invest about 65% of the portfolio in equities and are treated as equity funds for tax purposes. The balance is invested in the money market or debt instruments.