Assets Under Management AUM

Investment strategy for 2022: should you opt for Flexi-cap funds or Multi-cap funds?

Flexi-cap funds have the advantage of reducing their midcap / small cap exposure to zero. In contrast, multi-cap funds must maintain a minimum of 25% exposure to mid- and small-cap stocks, which can increase downside risk and volatility.

By changing the asset allocation rules for multi-cap funds some time ago, SEBI asked fund managers to be true to their etiquette and have a 25 percent proportion of funds to mid. and small cap in the portfolio. Industry experts say this has prompted many multi-cap funds to transform into flexible cap funds, in order to keep the larger contribution of large caps in their portfolios.

So much so that the net assets under management (AUM) of the Flexi cap funds amounted to Rs 2,14,649.76 crore at the end of November. In comparison, multi-cap funds managed a net AUM of Rs 31,543.38 crore.

Even though Flexi cap funds were seen as better positioned to handle market volatility, multicap funds outperformed Flexi cap funds in 2021. Experts say this is mainly attributed to the rise of small and mid cap stocks. . The flex-cap funds offered an average return of 31.89% in 2021, compared to 40.92% for the multi-cap category.

Prashant Joshi, co-founder and partner of Fintrust Advisors, said: “Although this time around the market has behaved in favor of multi-cap funds, during the volatile period when the quality and strength of the company provides the cushion. required, Flexi cap funds with a contribution from large cap stocks may perform better. The Flexi cap category topper offered 48.73% returns in 2021, compared to 67.86% returns by the multi-cap category topper.

Joshi explains, “The recent rally in the equity market, which is more pronounced in mid and small caps, and expectations of tighter monetary or fiscal policy across the world may cast a shadow over equity markets. In a downturn, medium and small businesses are more sensitive to market fluctuations, exhibit high volatility and may experience larger declines. ”

He adds: “In such a scenario, Flexi-cap funds have the advantage of reducing their exposure to mid / small caps to zero. In contrast, multi-cap funds must maintain a minimum exposure of 25 percent to mid- and small-cap stocks, which can increase downside risk and volatility. “

Will more multi-cap funds turn into flexibility caps?

According to Joshi, there may be more multi-cap fund offerings in the future. Multiple capitalizations have their advantages because they offer diversification across market capitalization. “A multi-cap fund allows the fund manager to adjust the allocation of the market capitalization curve according to economic cycles and earnings, providing better risk-adjusted returns over the long term,” adds Joshi.

How do you go about asset allocation during the volatile period?

The dynamic asset allocation (DAA) approach can save in times of volatility. That said, experts stress that it must match the risk profile of an investor. This involves adjusting the asset allocation between various asset classes and sub-asset classes according to the opportunity offered, the displayed volatility and the correlation, to adapt to market conditions.

It also helps reduce risk and mitigate volatility at the portfolio level, and take advantage of the opportunities offered by different asset classes. “Reducing exposure to equities and increasing debt when the stock markets are expensive, and vice versa, is an example of DAA. Shifting the allocation to large caps from mid and small caps based on risk-return expectations is an example of a DAA under-asset, ”adds Joshi.

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