When it comes to long-term wealth creation, flexi-cap funds are often the first choice of investors. The biggest feature of flexi-cap funds is that they are not limited to any one market cap (large, mid or small). The fund manager gets the flexibility to be defensive in large-cap and aggressive in small or mid-cap depending on the market conditions. In the last one year, the way the market has seen sharp fluctuations, people look towards flexi-cap funds to keep their portfolios balanced. The reason for this is that these funds have complete freedom to re-balance the portfolio, which can provide stable and better returns in the long term.

In this story, we will review the performance of two top-rated flexi-cap mutual fund schemes over various periods. These schemes are 5-star rated by CRISIL and Value Research. Both Parag Parikh Flexi Cap Fund (12 years old) and HDFC Flexi Cap Fund (30 years old) — both schemes have delivered strong returns over the long term.

Also read: HDFC Flexi Cap Fund Vs Franklin India Flexi Cap Fund: How both funds multiplied money over 30 years

Here, we compare the returns of these two funds (regular plans) over a period of 10 years, 5 years and 3 years, so that investors can make better decisions.

1. Parag Parikh Flexi Cap Fund

Assets under management (AUM): Rs 1,03,868 crore

Expense Ratio: 1.28%

Launch date: 24 May 2013

Return since launch: 19.22%

3-year return: 24.51% CAGR

5-year return: 25.28% CAGR

10-year return: 17.42% CAGR

At this rate of return on investment, a lump sum of Rs 1 lakh invested some 10 years ago would have turned into Rs 5 lakh.

If we look at SIP returns at 20.83%, an investment of Rs 10,000 monthly over the last 10 years would be worth Rs 34 lakh.

2. HDFC Flexi Cap Fund

Assets under management (AUM): Rs 75,784 crore

Expense Ratio: 1.39%

Launch date: 1 January 1995

Return since launch: 18.90%

3-year return: 27.78% CAGR

5-year return: 28.85% CAGR

10-year return: 15.40% CAGR

At this rate of return, an investment of Rs 1 lakh would be worth Rs 4.19 lakh after 10 years now.

In SIP investment, Rs 10,000 per month investment started 10 years ago would have turned into Rs 3.27 lakh now at a CAGR of 19.07%.

This performance review shows that Parag Parikh Flexi Cap Fund has delivered better returns to both SIP and lump sum investors over the last 10 years.

Also read: Which are the highest returns Mid Cap funds for SIP?

Who should invest and who should not in flexi-cap funds?

Flexi-cap funds are suitable for those investors who want to create long-term wealth in equity through mutual funds, but at the same time consider diversification in the portfolio important. These funds are better for those investors who do not want to choose the market cap themselves and want to hand over this task to a professional fund manager. However, investors who are nervous about high market volatility or whose investment goal is less than 3 years should stay away from flexi-cap funds.

Not just returns, look at these factors too

Although returns are an important parameter of any fund, it is not right to take a decision based only on that. You should also pay attention to these things:

Experience of the fund manager and his investment strategy

Portfolio allocation of the fund (balance of large-mid-small)

Expense ratio i.e. cost of running the fund

Track record and transparency of the fund house

Risk-adjusted returns like Sharpe ratio

Both Parag Parikh and HDFC have performed well on all these parameters, but there is a difference in their portfolio structure and investment approach, which is important to understand.

Past returns are not a guarantee of future

The figures given in this story are based on the performance of both the funds in the last 10, 5 and 3 years. But mutual fund investments are subject to market risks and there is no guarantee that past returns will be repeated in the future. Therefore, before investing, definitely consult your financial advisor and decide on investment according to your goal, time horizon and risk capacity.