Thanks to the current volatility, retail investors are increasingly jittery about investing directly in the stock market. With benchmark indices already lower by 10 per cent from their all-time high, there are fewer reasons for investors to get exposure to equity than there were earlier.

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Typically, wary investors tend to opt for safer options such as fixed deposits (FDs) or debt mutual funds.

However, experts try to calm investors’ nerves by clarifying that volatility is the best tool for assessing their risk appetite.

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“Market volatility is the best tool to check investors’ risk-taking ability. It’s a reality check of patience for many retail investors. For the last few months, we have witnessed continuous volatility. The naive investors would naturally get fearful because of the negative performance of their portfolio but this is, in fact, a good time to continue the SIPs in order to accumulate more units at lower NAV,” says Preeti Zende, founder of Apna Dhan financial Services.

As far as different options that exist now, it is recommended to explore flexi cap funds, wherein allocation to different categories can be tweaked to align with changing market conditions.

What are flexi cap funds?

These refer to mutual funds which invest at least 65 per cent in equity and equity-related instruments. They enjoy the flexibility of investing in the stocks across market capitalisation — large cap, mid cap and small cap.

There are 39 flexi cap schemes with total AUMs of ₹4.35 lakh crore, second highest after sectoral or thematic funds which have a total AUMs of ₹4.61 lakh crore. In November alone, flexi caps received an inflow of ₹5,084 crore while the corresponding figure for multi cap funds stood at ₹3,626 crore and for large caps, it stood at ₹2,547 crore.

Popular among investors

There is no denying the fact that flexi caps are among the most popular categories of mutual funds among investors.

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“When the domestic economy does better, a broader market index such as Nifty 500 (represented in the flexi cap fund) tends to do better than the large cap index such as Nifty50. Besides, these funds give a lot of flexibility to the fund managers who can decide where to invest. The scope of stock picking is better across sectors and across market cap,” says Mihir Vora, Chief Investment Officer, TRUST Mutual Fund.

“Due to the uncertain future, it is always better to stick to large cap and/or flexi cap funds. In flexi cap funds, fund managers take their calls to have exposure in all equity and debt allocation sections or even prefer to sit on cash. So, in a single fund, you can get allocation to large cap, mid cap, small cap, and if needed in debt funds,” says Zende of Apna Dhan.

Need for caution

It is recommended to invest in flexi caps to take advantage of volatility. However, one should exercise caution and opt for schemes with fund managers who have a deep understanding.

“If you are a seasoned investor, then you can continue your flexicap investments. But select only those flexi caps whose fund managers have a deep understanding of investing in a sideways market. The skill of fund managers matters a lot in such a volatile situation,” explains Zende.

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