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Should I invest in a flexi-cap fund or a focused equity fund? - Anonymous
Both flexi-cap and focused equity funds aim to fulfil a similar investing objective: wealth creation through long-term capital appreciation. Additionally, they both buy and sell stocks from the same universe.
The key difference is the number of stocks they hold in their portfolios.
On one hand, focused funds can hold no more than 30 stocks at any given point. In contrast, flexi-cap funds have no such limitations. Some flexi-cap funds may choose to hold fewer than 30 stocks, while others may diversify extensively, holding more than 60 stocks in their portfolios.
Risk element
Focused funds generally have a more concentrated and high-conviction strategy. While this approach offers the potential for higher returns if the fund manager's picks perform well, it is comparatively riskier due to the limited number of stocks it can invest in.
What you should do
If you're considering investing in only one fund, choosing a flexi-cap fund is advisable, as its broader diversification is likely to offer more stability.
But if you plan to build a portfolio of two or three funds, you can choose a mix of focused and flexi-cap funds. Even if all of the funds in your portfolio are focused, you would still achieve a fair level of diversification across your holdings at the overall portfolio level.
Lastly, because both fund types cater to the same investment goal, we club them together in our ratings and rankings. This allows for a more comprehensive comparison since they effectively compete for the same allocation in an investor's portfolio. So, when you visit Value Research Online's flexi-cap category page, it includes both focused and flexi-cap funds, allowing you to compare and select the best option for your needs.
Also read: Flexi-cap vs aggressive hybrid funds: Where to invest Rs 1 lakh?
This article was originally published on October 24, 2024.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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