Which is the better investment for your portfolio: large-cap or flexi-cap funds?

Are you looking for the best way to grow your wealth? Large-cap and flexi-cap funds are popular options, but which is right for you? Read this article to find out if you need one or both in your portfolio.

Why mutual funds
  • Flexi-cap funds can invest in any company, while large-cap funds invest in the largest companies.
  • Flexi-cap funds offer more risk and potential returns than large-cap funds.
  • The best type of fund for you will depend on your investment goals and risk tolerance.

Are you someone who is trying to diversify your mutual fund's investment portfolio but needs help to figure out where to start? Have you considered large-cap and flexi-cap funds? Large-cap and flexi-cap funds are two of the most popular types of mutual funds. Large-cap funds invest in the largest companies in the market, while flexi-cap funds can invest in any size company. Which type of fund is right for your portfolio? This article explores the benefits of these two types of funds and helps you decide if one or both could be a valuable addition to your portfolio. Learn more about how large-cap and flexi-cap funds can help you achieve your investment goals.

Why mutual funds?

Mutual funds are a great way for investors of all levels to get started in the stock market. They offer diversification, professional management, and tax benefits. For novice investors, mutual funds can provide a way to invest in various stocks without having to do the research and analysis required to pick individual stocks. Experienced investors can also use mutual funds to build a diversified portfolio and take advantage of professional management. There are two main types of mutual funds: large-cap and flexi-cap. 

Flexi-cap funds vs. Large-cap funds

Flexi-cap, or multi-cap funds, are mutual funds that invest in a diversified portfolio of stocks across market capitalisation segments. Based on the fund manager's discretion, these funds can invest in stocks of any market capitalisation, i.e., large-cap, mid-cap, or small-cap companies. This flexibility enables them to adapt to market changes and invest in companies with different market caps, making them ideal for investors looking for a balanced portfolio.

In the Indian context, large-cap funds refer to mutual funds that invest predominantly in the stocks of large-cap companies. These companies have a market capitalisation of more than INR 20,000 crore and are considered financially stable and well-established. Large-cap funds are known for their potential to offer steady returns over the long term.

Given below is a table that summarises the key differences between flexi-cap funds and large-cap funds:

differences between flexi-cap funds and large-cap funds

How to choose between a large-cap and a flexi-cap fund?

Ultimately, the best type of fund for you will depend on your investment goals and risk tolerance. A large-cap fund may be a good choice if you are looking for a relatively safe investment with the potential for growth. If you are looking for a more aggressive investment with the potential for higher returns, then a flexi-cap fund may be a better option.

Also ReadLarge-Cap Funds Are Finding It Increasingly Difficult To Beat The Benchmark: Should You Go Passive?

Tax implications of investing in mutual fund investments

As both categories of mutual funds (i.e., large-cap funds and flexi-cap funds) are equity-oriented, they share a similar tax structure. Short-term gains occur when the holding period is less than 1 year and are subject to a 15% tax. Long-term gains, which occur when the holding period is 1 year or longer, are subject to a 10% tax with a tax exemption of up to Rs 1 lakh.

Are flexi-cap funds delivering on their promises?

According to data on Moneycontrol.com, 35 equity-oriented mutual funds are listed under the flexi-cap fund category. Of these, 23 funds have 50% or more of their assets under management invested in large-cap funds, while 8 funds have more than 40% but less than 50% of their assets under management invested in large-cap funds. The remaining 4 funds out of 35 have 37–39% of assets under management invested in large-cap funds. This indicates that a significant portion of assets under management in flexi-cap funds are invested in large-cap funds, making it important for investors to reconsider their portfolio allocation.

The comparatively high investment in large-cap companies may be because of uncertainties in global economic scenarios. There is a high probability that fund managers are currently investing more in large-cap companies to add value and reduce risk to their funds.

Also Read: How To Choose Between Multi-Cap Funds and Flexi-Cap Funds?

Investors considering mutual fund investments should consider investing for the long term, i.e., five years or more.

Conservative investors needing a small equity allocation can take advantage of equity exposure via large-cap funds. If you are an aggressive investor, then you can consider flexi-cap funds (potential for higher returns accompanied by higher risk).

Equity funds are volatile, so it is wise to invest in them through an SIP.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.

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