Investing in mutual funds is not limited to choosing between equity and debt funds. There is the option to proceed with hybrid funds as well. In the stated category, there are further available options, flexi cap funds and balanced advantage funds. They offer a flexible investment approach and improve returns by balancing market risks.

Yet, the difference lies in investment method and adaptability to market conditions. Knowing the basics and suitability criteria can help with informed decision-making. So, here we offer insights into the topic.

What is Flexi Cap Fund?

Let us begin with understanding the Flexi Cap meaning. It involves around 65% of the asset investment in equity and equity-related instruments. They allow investment across small, mid and large cap stocks with the flexibility to allocate even 100% in any market cap segment. This feature differentiates them from multi-cap funds.

The investment quantity is based on the market conditions and investment strategy of an individual. The flexibility to reallocate the funds among the market cap segments allows investors to benefit from the market volatility.

Features of Flexi Cap Funds

The flexi cap funds are characterised by the following characteristics:

• Equity mutual funds: The flexi cap funds are considered Equity Mutual Funds by SEBI regulations. Hence, the investors must invest at least 65% of their total assets in equity and equity-related instruments.

• Flexibility: Flexi cap funds have no restriction on how much investors can invest in each market segment.

• Potentially better returns: The flexibility to invest in small and mid-cap stocks allows for higher growth potential in comparison to large-cap stocks. It helps gain better returns.

• High volatility: The investment in small and mid-cap stocks also accompanies high volatility compared to large-cap funds. Thus, sensitivity to market fluctuations increases the associated risk, too.

• Active management: To benefit from the market fluctuations, the investment requires making regular decisions about stock selection and market allocation. Hence, these funds require active monitoring of economic situations, market trends and other aspects.

What is Balanced Advantage Fund?

Balanced Advantage Funds (BAFs) are also referred to as dynamic asset allocation funds. The name can be attributed to the flexibility to allocate and move the funds across debt or equity, depending on the market fluctuations. During peak market times, funds are shifted to debt to protect against market downturns.

Similarly, during poor market conditions, the funds are transferred to equity to benefit more from the upside. This adaptable nature, as per the market conditions, allows taking up the maximum benefit of the changing market scenarios.

Features of Balanced Advantage Funds

The defining characteristics of balanced advantage funds are as follows:

• Adaptability: The dynamic asset allocation of funds helps adjust the fund exposure to equity and debt as per the market conditions. It helps reduce risks.

• High returns: The adjustment with respect to the market volatility helps modify the strategy to capitalise on market trends.

• Low losses: The ability to reduce equity exposure in high-risk markets helps minimise the potential losses.

• Balanced returns: The division of funds into equity and debt helps benefit from both growth and stability.

• Active management: With changes in investment as per the market fluctuations, they also require constant monitoring and management by fund managers.

Flexi Cap Funds or Balanced Advantage Funds: Which One is Better for You?

The suitability of each of these funds varies depending on the financial goals, risk appetite and other factors. Here is an idea of which funds are suitable for which type of investors and their goals.

Flexi Cap Funds

• High risk appetite: The investors with risk appetite ranging from moderate to high and comfortable with market volatility can consider flexi cap funds.

• Long-term investments: The investors with long-term planning for finances, i.e., between 5 and 7 years, can consider investment in these funds.

• Portfolio diversification: The flexi cap funds are a better option for portfolio diversification, with the ability to invest in different market cap segments.

• Equity-oriented tax benefits: Since flexi cap mutual funds are associated with over 65% equity exposure, the tax benefits can be planned accordingly.

• Benefit from market opportunity: If investors want to leverage market opportunities actively by shifting allocations across market caps, the flexi caps are a worthy option.

Balanced Advantage Funds

• Balanced risks and returns: If the goal is to safeguard capital while benefitting from the quality returns, balanced advantage funds are for you.

• Portfolio diversification: These funds are a worthy option for portfolio diversification with investments between equity and debt.

• Market condition adaptability: If investors want investment with reduced risk in unpredictable markets, the balanced advantage funds can offer the opportunity for the same.

• Tax-efficient investment: By maintaining the equity exposure above 65%, balanced advantage funds qualify for equity taxation benefits while using debt allocation to manage risk.

Wrapping Up!

Flexi cap funds and balanced advantage funds are worthy investment options to benefit from the market. With distinct purpose and investment strategies, the investors can choose between the two depending on factors such as risk appetite, financial goals and other factors. The flexi cap funds are suited to leverage market opportunities across capitalisations, while balanced advantage funds are a good option for those seeking balanced growth in a controlled risk environment.

The Tax is shown above is for general information only. Investors are advised to consult their Tax Consultant or Financial Advisor to determine tax benefits applicable to them.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.