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Should I invest in a multicap fund good over a flexi fund for the next 15 years?

Ramalingam

Ramalingam Kalirajan  |6501 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 30, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Mehernosh Question by Mehernosh on Sep 28, 2024Hindi
Money

Hi Team, Is Flexi fund good or Multicap fund good to invest for next 15 years

Ans: Flexicap and Multicap funds are both equity mutual funds, but they have key differences. Both categories offer diversification, but their strategies in stock selection vary.

Flexicap Funds: These funds invest in companies of any market capitalization—large, mid, or small cap. Fund managers have the freedom to shift between different market caps based on market conditions, offering flexibility. If the market favors large caps, they can increase allocation to them, and vice versa with mid and small caps. This adaptability is crucial for long-term wealth creation.

Multicap Funds: These funds are required by regulation to allocate a minimum of 25% each in large, mid, and small cap stocks. This gives the fund a more balanced exposure to all three segments, but the fund manager has less flexibility to navigate changing market conditions. Multicap funds are ideal for investors who want steady exposure across different market caps at all times.

For a 15-year horizon, the decision between the two should depend on your risk tolerance and financial goals.

Flexicap Funds: Strengths and Considerations
Market Timing Flexibility: The fund manager’s ability to move across market caps based on opportunities can lead to better returns over time. If large caps are expected to underperform and small caps are set to rise, the fund manager can dynamically adjust the portfolio.

Lower Volatility: Flexicap funds can reduce risk by allocating more to large caps during market downturns. This strategy gives some downside protection, as large-cap companies tend to be more stable during volatile times.

Growth Potential: In a rising market, the flexibility to invest in small and mid-cap stocks can offer high growth. Historically, small and mid-cap stocks have outperformed large-cap stocks over the long term, though they carry more risk.

However, Flexicap funds are more dependent on the skill of the fund manager. A less skilled manager might not take advantage of the flexibility, leading to lower returns.

Multicap Funds: Strengths and Considerations
Balanced Exposure: Multicap funds provide exposure to all market segments—large, mid, and small caps. This allocation ensures that your portfolio is not overly concentrated in one type of stock. With 25% in each category, these funds capture the potential of all market segments.

Steady Growth: The balanced nature of Multicap funds ensures that you participate in the growth of small and mid-caps, while large-cap stocks provide stability. This makes multicap funds a suitable choice for long-term investors who seek consistent exposure.

Risk Mitigation: By maintaining a minimum allocation in large-cap stocks, multicap funds have a buffer against volatility. Large-cap companies tend to provide a cushion during market downturns.

However, the regulatory requirement of a fixed allocation to each market cap means that the fund manager cannot shift the portfolio freely. In a downturn for small or mid-cap stocks, the fund may underperform compared to Flexicap funds that can adjust to safer large-cap stocks.

15-Year Investment Horizon and Wealth Creation
For a 15-year investment horizon, both Flexicap and Multicap funds have the potential to create substantial wealth. Over the long term, equity investments tend to outperform other asset classes, and both fund categories are well-positioned to ride through market cycles.

Wealth Growth: Both Flexicap and Multicap funds are designed for long-term wealth creation, but Flexicap funds may offer higher growth potential due to their flexibility. However, this depends heavily on market conditions and the fund manager's ability to allocate correctly.

Risk and Volatility: Over 15 years, both funds will experience periods of volatility. While Multicap funds may provide more balanced exposure to mitigate risk, Flexicap funds offer the flexibility to move into safer large caps during downturns.

Investment Discipline: Regardless of the fund type, staying invested for the entire period is crucial. Markets are cyclical, and periods of downturns are often followed by strong recoveries.

Choosing the Right Fund for You
Consider Flexicap Funds If:
You prefer flexibility and trust the fund manager’s ability to shift across market caps based on market conditions.

You are comfortable with a higher degree of fund manager involvement and are willing to accept more volatility in exchange for potentially higher returns.

You want the ability to take advantage of changing market trends without being constrained by a set allocation to large, mid, or small caps.

Consider Multicap Funds If:
You want a balanced, steady approach that invests in large, mid, and small caps consistently, regardless of market conditions.

You prefer a more predictable structure where the fund does not deviate much from its mandate of exposure to all market segments.

You want diversification across all caps but prefer less reliance on the fund manager’s ability to time the market effectively.

Disadvantages of Direct Funds and Importance of Professional Guidance
If you are investing in direct mutual funds, you may miss out on valuable advice. A certified financial planner can offer personalized advice on portfolio selection, allocation, and periodic review. While direct plans have a lower expense ratio, the lack of professional guidance could result in suboptimal returns.

Regular plans, when invested through a qualified MFD (Mutual Fund Distributor) with CFP credentials, offer more comprehensive service. The expertise of a CFP ensures your investments are aligned with your long-term financial goals, while providing regular reviews and adjustments. They can also help with tax-efficient withdrawals and retirement planning, which is crucial for a 15-year horizon.

Long-Term Strategy
For the next 15 years, it is important to focus on growth while managing risk. Here are key points to consider:

Review Periodically: Regardless of whether you choose a Flexicap or Multicap fund, periodic review of your portfolio is essential. Your risk appetite may change over time, and your financial goals may evolve.

Stay Invested During Volatility: Both fund types will experience market volatility. A long-term horizon means you should not be overly concerned with short-term market fluctuations. Focus on staying invested and letting your corpus grow.

Asset Allocation: In addition to Flexicap or Multicap funds, consider having a balanced asset allocation. As you approach the end of your 15-year horizon, you may want to gradually shift to safer instruments like debt funds.

Tax-Efficient Withdrawals: At the end of your investment period, you may want to set up a systematic withdrawal plan (SWP) to ensure tax-efficient withdrawals for income generation.

Final Insights
Both Flexicap and Multicap funds offer potential for growth over a 15-year period, but the choice depends on your comfort level with fund manager flexibility versus structured exposure.

Flexicap funds are ideal if you seek higher returns with a dynamic approach, while Multicap funds offer balanced, diversified exposure.

It’s important to have a certified financial planner by your side to ensure you are making the most of your investments and taking advantage of market opportunities.

Periodic reviews, staying invested through market cycles, and maintaining a long-term perspective are key to wealth creation.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |6501 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 18, 2024

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Thanks a bunch for the response Mr.Ramalingam sir. I would really appreciate if you can shed some light on few flexi cap funds. Do you think I have to stop any current fund or continue with same and add either of large or flexi cap fund to the folio for diversification and risk appetite. I have twin girls of age 2 and wanted to save big numbers for their future alongside. Thanks for your time again!!
Ans: Flexi cap funds are a popular category in mutual funds that offer flexibility in terms of investment across market capitalizations (large cap, mid cap, and small cap). These funds can adapt to market conditions and capitalize on opportunities across sectors and market segments.

Advantages of Flexi Cap Funds:

Diversification: Flexi cap funds invest across market caps and sectors, providing diversification and potentially reducing portfolio volatility.
Flexibility: The fund manager has the flexibility to shift allocations based on market conditions, which can help in capitalizing on opportunities and managing risks.
Potential for Growth: Flexi cap funds can benefit from growth opportunities across the market spectrum, from large established companies to smaller, high-growth potential companies.
Should you stop or continue with current funds?

Assess Current Portfolio: Evaluate your current mutual fund portfolio to understand its composition, performance, and alignment with your investment goals.
Check Overlapping: If your current funds already have significant exposure to large cap stocks, adding a flexi cap fund can provide exposure to mid and small cap segments, enhancing diversification.
Risk Appetite and Diversification: If you have a moderate to high-risk appetite and are looking for diversification across market caps, adding a flexi cap fund can be beneficial. However, if your current portfolio is well-diversified and aligned with your risk profile and investment goals, there may not be a need to stop any existing funds.
Performance Review: Regularly review the performance of your existing funds. If any fund consistently underperforms its benchmark or peers, consider replacing it with a better-performing option.
Considerations for Investing for Twin Girls' Future:

Long-Term Horizon: Since your twin girls are just 2 years old, you have a long-term investment horizon. Flexi cap funds, with their adaptability and potential for growth, can be suitable for long-term investment goals.
Risk Tolerance: While aiming for high returns, it's crucial to consider your risk tolerance. Ensure your investment strategy aligns with your risk tolerance to avoid potential stress during market downturns.
Regular Review: As your daughters grow and their financial needs evolve, regularly review and adjust your investment strategy to ensure it remains aligned with their future goals.
Consultation with Financial Planner: Given the importance of saving for your daughters' future, it's highly recommended to consult with a certified financial plannerr. They can provide personalized advice based on a thorough understanding of your financial situation, goals, and risk tolerance.
Remember, while flexi cap funds can be a valuable addition to your investment portfolio, it's crucial to choose funds that align with your investment goals, risk tolerance, and time horizon. Always consider seeking professional advice before making investment decisions.

..Read more

Ramalingam

Ramalingam Kalirajan  |6501 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 23, 2024

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Hi. I am currently investing in mf via sip from last 4 months looking for long term investment atleast 10-15 years. As of now I am investing in Nippon small cap, hdfc mid cap, Parag parikh flexi cap 2500 each. To bring more diversity in my portfolio I am planning to include 1 multi cap fund, 1 hybrid fund and may be 1 more flexi cap fund with bit aggressive inv approach. I have 2 questions for you: 1. Do you think this portfolio is good enough for long term. 2. Suggest if you can which one I can go for : i. Multicap - quant active fund ii. Hybrid - Icici multi asset/ Icici equity & debt/ hdfc balance advantage iii. Flexi cap - Quant/ JM Flexi cap
Ans: congratulations on taking steps towards building a solid investment portfolio.

It's great to see that you're already investing in mutual funds via SIP and thinking about long-term goals.

Evaluating Your Current Portfolio
You currently invest in Nippon Small Cap, HDFC Mid Cap, and Parag Parikh Flexi Cap.

This selection shows a balanced approach, blending small cap, mid cap, and flexi cap funds.

Benefits of Your Current Portfolio
Diversification: Investing in different market caps spreads risk.

Growth Potential: Small and mid-cap funds offer high growth potential.

Flexibility: Flexi cap funds provide flexibility by investing across market caps.

Long-Term Investment Perspective
Your investment horizon of 10-15 years is ideal for equity investments.

It allows you to ride out market volatility and benefit from compounding.

Expanding Your Portfolio
Adding a multi cap, hybrid, and another flexi cap fund can enhance diversification.

It also aligns with your goal of a balanced yet aggressive investment approach.

Evaluating Additional Funds
Multicap Fund
Multi cap funds invest across large, mid, and small cap stocks.

This strategy provides a balanced mix of stability and growth.

Hybrid Fund
Hybrid funds combine equity and debt investments.

They offer a blend of growth potential and stability, reducing overall portfolio risk.

Flexi Cap Fund
Adding another flexi cap fund can further diversify your investments.

These funds adapt to market conditions, providing flexibility and potential for higher returns.

Potential Fund Choices
Multicap Fund
Consider a multi cap fund that has a strong track record and good fund management.

Hybrid Fund
Evaluate hybrid funds based on their asset allocation strategy and historical performance.

Flexi Cap Fund
Choose a flexi cap fund that shows consistent returns and aligns with your risk tolerance.

Diversification Benefits
Risk Reduction: Diversification spreads risk across different asset classes and market caps.

Steady Returns: A diversified portfolio can provide more consistent returns over time.

Flexibility: Multiple fund types allow you to adapt to changing market conditions.

Monitoring and Adjusting
Regular Review: Periodically review your portfolio to ensure it meets your goals.

Performance Check: Monitor the performance of each fund and compare it with benchmarks.

Rebalance: Adjust your portfolio as needed to maintain desired asset allocation.

Consulting a Certified Financial Planner
Personalized Advice: A CFP can provide tailored investment strategies.

Holistic Planning: They consider your entire financial situation and goals.

Expert Guidance: Benefit from their market knowledge and experience.

Conclusion
Your current portfolio is a good start.

Adding a multi cap, hybrid, and another flexi cap fund can enhance diversification and growth potential.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6501 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 29, 2024

Asked by Anonymous - May 26, 2024Hindi
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Sir I am investing 25k per month .10k in canara robecco.5k in PGIM flexicap.7.5 K in Nippon India small call.and 2.5K in tata small cap. Pls review my portfolio in tension of long term investment. Pls suggest one mid cap fund with this. Do I need to add another flexicap apart from above.What should be. Please also suggest if I want to stop one fund and switch into another what is process of investing it at one time
Ans: You are currently investing Rs 25,000 per month across four mutual funds: Canara Robeco, PGIM Flexicap, Nippon India Small Cap, and Tata Small Cap. Let's review your portfolio and suggest any necessary adjustments for long-term growth.

Reviewing Your Current Portfolio
Your current investments are as follows:

Canara Robeco (Rs 10,000/month): Canara Robeco is known for its balanced approach, offering stable returns.

PGIM Flexicap (Rs 5,000/month): A flexicap fund provides the flexibility to invest across various market capitalizations.

Nippon India Small Cap (Rs 7,500/month): Small-cap funds have high growth potential but come with higher risks.

Tata Small Cap (Rs 2,500/month): Another small-cap fund, adding more exposure to high-growth but volatile investments.

Analysis of Current Portfolio
Your portfolio is diversified but leans heavily towards small-cap funds, which increases risk. Small-cap funds are volatile and can lead to significant gains or losses. It is essential to balance this with funds that offer stability and moderate growth.

Suggesting a Mid Cap Fund
Adding a mid-cap fund can balance your portfolio. Mid-cap funds offer higher growth potential than large-cap funds but are less risky than small-cap funds. Here are the benefits of adding a mid-cap fund:

Balanced Growth: Mid-cap funds provide a mix of growth and stability.

Risk Mitigation: Diversifies your risk profile, reducing dependency on small-cap performance.

Potential Returns: Mid-cap funds can outperform in certain market conditions, offering substantial returns.

Recommendation for a Mid Cap Fund
Consider investing in a well-managed mid-cap fund. A mid-cap fund will provide a balanced growth approach and diversify your risk. Consult with a Certified Financial Planner (CFP) to choose the best mid-cap fund for your needs.

Considering an Additional Flexicap Fund
You already have PGIM Flexicap. Adding another flexicap fund may not be necessary. Flexicap funds provide the flexibility to invest across various market capitalizations, offering diversification within a single fund. Instead, ensure your current flexicap fund aligns with your goals.

Switching Funds: Process and Considerations
If you want to stop one fund and switch to another, follow these steps:

Step 1: Evaluate Performance
Assess the performance of the fund you wish to stop. Consider factors like past performance, consistency, and management quality.

Step 2: Redeem Units
Initiate the redemption of units from the fund you want to exit. This can be done online or through your mutual fund distributor.

Step 3: Transfer to New Fund
Once redeemed, the funds will be credited to your bank account. You can then invest this amount as a lump sum in the new fund.

Step 4: Systematic Transfer Plan (STP)
Alternatively, use a Systematic Transfer Plan (STP). This allows you to transfer the redeemed amount gradually into the new fund, reducing market timing risks.

Optimizing Your Portfolio
Regular Reviews
Review your portfolio regularly. Monitor the performance and make adjustments as needed. A quarterly review is advisable.

Rebalance Annually
Rebalance your portfolio annually to maintain your desired asset allocation. This ensures your investments remain aligned with your goals and risk tolerance.

Increase SIP Amount
As your income grows, consider increasing your SIP contributions. This will accelerate your wealth accumulation and help achieve your long-term goals faster.

Conclusion
Your current portfolio is diversified but has a heavy tilt towards small-cap funds. Adding a mid-cap fund will balance your risk and growth potential. Another flexicap fund may not be necessary. Ensure regular reviews and rebalancing to stay on track. If switching funds, consider using an STP for a smoother transition. Consulting with a Certified Financial Planner (CFP) will provide tailored advice to optimize your investments.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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