The Indian markets are reaching new highs almost every day. While this is great news for investors all around, it can be murky ground for new investments. If you want to invest in this already high market, which mutual fund should you invest in and why? This is where the conundrum of investing in either a mid-cap fund or a flexi-cap fund comes to the foray. Here is all you need to know about these two fund types to help you decide which fund would work better.
What is a Mid-Cap mutual fund?
Midcap funds are a type of mutual fund that invests in medium-sized companies with a market capitalisation between ₹ 5,000 crores and ₹ 20,000 crores. Midcap mutual funds are popular amongst investors, primarily due to their ability to provide growth with moderate risks. Midcap companies are known to perform better than large-cap companies. On the other hand, the risk associated with mid-cap companies is lower than that of small-cap companies. HDFC Mid-Cap Opportunities Fund is a good example of a Mid-Cap mutual fund.
HDFC Mid-Cap Opportunities Fund Invests 92.13% of its fund value in the domestic equity market. A split of which is 6.9% in large gap companies, 50.19% in medium-cap companies, and 15.13% in small-cap companies. With the majority of investment in medium-cap companies, the fund is capable of returning impressive returns over a three to five-year period.
Here are the top five investments sector-wise:
– Financials – 19.91%
– Consumer Discretionary – 14.46%
– Industrials – 9.28%
– Materials – 7.89%
– Treps/Reverse Repo – 7.81%
Here are the top five investments in companies:
– TREPS – 7.81%
– Indian Hotels Company Ltd. – 3.75%
– Max Financial Services Ltd. – 3.45%
– The Federal Bank Ltd. – 3.23%
– Ipca Laboratories Ltd. – 3.07%
What is a Flexi-Cap mutual fund?
Flexi Cap mutual funds are dynamic mutual funds that invest in companies of various sizes and sectors. According to Sebi guidelines, at least 65% of the funds must be invested in equity or equity-related instruments. Since the fund invests in a large array of companies across sizes and sectors, it allows for a much more flexible factor. The fund managers can make changes to the portfolio as per the market conditions for higher returns. HDFC Flexi Cap Fund is one of the more popular flexi cap funds in the country.
The fund has 86.51% of its total investments in the domestic equities. A split of 59.99% in large-cap companies, 5.27% in mid-cap campaigns, and 4.08% in small-cap companies. The fund also has a 0.64% investment in debt instruments in the form of government securities. Thus, allowing the fund to navigate through different market conditions and provide better returns over a longer.
Here are the top five investments sector-wise:
– Financials – 29.24%
– Health Care – 10.26%
– Information Technology – 10.26%
– Finance – Banks – Private Sector – 9.16%
– Treps/Reverse Repo – 8.90%
Here are the top five investments in companies:
– ICICI Bank Ltd. – 9.30%
– HDFC Bank Ltd. – 9.16%
– TREPS – 8.90%
– Axis Bank Ltd. – 8.34%
– Cipla Ltd. – 5.01%
Which one should you choose?
Here are a few factors that should help you better decide which phone would work better for you in the long run.
- Risk Appetite
Investors with a larger risk appetite and tolerance will incline a bit towards mid-cap funds due to their ability to grow, irrespective of volatility. On the other hand, the diverse nature of a flexi cap fund makes it idle for conservative investors.
2. Market Situation
In an overall bull market, mid-cap funds tend to do better, since the companies usually outperform. Conversely, in the bearish market, a flexi cap fund can do better, due to its flexibility and diversification.
3. Goals
Investing in a mid-cap fund might be the better approach if you have set out to achieve some aggressive goals. At the same time, flexi cap funds can be significant for bit more conservative goals.
Conclusion
If you are looking for a more aggressive fund to park your money or wish to move towards a more aggressive goal, investing in a fund like HDFC Mid-Cap Opportunities Fund can be ideal. The inherent structure will allow for better returns due to growth-oriented companies. Conversely, if you are looking to add a bit of diversification to your portfolio and are a more conservative investor, HDFC Flexi Cap Fund can be a great alternative. Its flexibility to change allocations as per the market conditions makes it better suited for diversification and long-term goals.
