Bonds

Index, flexi-cap or balanced funds?


Low-cost index funds, balanced advantage funds and flexi-cap funds are the top product picks of wealth managers and analysts among mutual fund categories in 2022. Analysts said with share valuations rich, fund managers who are nimble-footed across the markets will be able to deliver better returns, while lower product costs will give the schemes an edge.

Index funds

The popularity of this passive product has been growing rapidly over the past three years. It is fast replacing the underperforming large-cap schemes as the preferred avenue to bet on blue-chips. Low-cost index funds like the Nifty 50, Nifty Next 50 and Nifty Equal 50 cover the top 100 companies and close to 85% of the country’s market capitalisation. While actively-managed schemes of mid- and small-cap shares are still popular, it might just be a question of time before investors start preferring index schemes of these categories.

Balanced Advantage Funds

This is still considered the best hybrid product, especially for those looking to dip their toes in the equity waters. It is also a good scheme for those already invested in equities to allocate incremental money with market valuations rich with flexibility for fund managers to alter allocations between equity and debt as per the market conditions. Currently, most schemes have a lower equity allocation of 30-40% with valuations expensive.

Flexi-cap schemes

This fund category is considered the best option for investors wanting to allow fund managers to decide where to invest. Unlike pure-play large-, mid- or small-cap funds, this product gives money managers mandate to decide on where to invest.

“Flexi-cap funds give the fund manager the freedom to invest in stocks where he has maximum conviction without any restrictions on market capitalisation,” says Rupesh Bhansali, head (distribution), GEPL Capital.

For instance, many fund managers handling flexi-cap schemes are staying away from mid- and small-cap stocks after their blistering run in the past 21 months. “Mid- and small-cap stocks have run up very fast. Any correction could lead to low liquidity, which investors need to be careful about,” says Vidya Bala, founding partner, Prime Investor.



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