Many mutual fund investors, especially new investors, are extremely concerned about the current volatility in the market. They don't know whether they should bet on large cap segment or mid cap or some others. Also, they wonder how they will know when to switch when the market mood changes. Are you in the same boat? Consider investing in flexi cap mutual funds.
Flexi cap mutual funds offer the fund managers the freedom to invest across market capitalisations and sectors/themes. It means the fund managers can invest anywhere based on his outlook on the market. They schemes are typically recommended to moderate investors to create wealth over a long period of time. Ideally, one should invest in these schemes with an investment horizon of five to seven years.
As said earlier, these schemes have the freedom to invest anywhere depending on the view of the fund manager. Investors should be extremely careful about this aspect. Investors should make sure that they are choosing a scheme that is in line with their risk tolerance. For example, some flexi cap schemes may be more conservative than others. It is for you to identify the one that suits your temperament.
If you are planning to invest in flexi cap funds, here are our recommendations. There are no changes in the list as all the schemes have retained their place in the list. Please note Aditya Birla Sun Life Flexi Cap Fund, part of our recommendation list, was in the second quartile last month. The scheme had been in the third quartile in the last eight months. We will closely watch the performance of these schemes and update you about it every month.
Best flexi cap schemes to invest in 2022
- Parag Parikh Flexi Cap Fund
- UTI Flexi Cap Fund
- PGIM India Flexi Cap Fund
- Aditya Birla Sun Life Flexi Cap Fund
- SBI Flexi Cap Fund
- Canara Robeco Flexi Cap Fund
Here is our methodology:
ETMutualFunds.com has employed the following parameters for shortlisting the equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i) When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii) When H is less than 0.5, the series is said to be mean reverting.
iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme =
[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore
(Disclaimer: past performance is no guarantee for future performance.)
