Flexi Cap vs Hybrid Funds: Where Should You Invest Your Money?

The availability of different types of funds is one of the key reasons that has contributed to the popularity of mutual funds. The mutual fund universe is vast to accommodate the needs of every investor for various life goals. Among these, flexi-cap and hybrid funds are two types of funds that have caught the fancy of retail investors. This is evident from the inflows these funds have received.

While flexi-cap saw an inflow to the tune of ₹ 3513 crores in August 2024 , hybrid funds received an inflow of ₹ 10,005 crore s. If you are wondering which among the two funds to choose for investing, read on.

What is a flexi-cap fund?

Flexi-cap funds are mutual funds with a flexible investment mandate. Unlike other funds, such as large caps or small caps, which have a fixed investment mandate and proportion, flexi-cap funds can invest in stocks across market caps in any proportion.

In other words, the fund manager can strategically rotate the fund’s assets between large caps, mid-caps, and small caps. Thus, the fund can invest across companies and various market segments.

What are hybrid funds?

Hybrid funds are mutual funds that invest in more than one asset class. While they mostly invest in equity and debt assets, they sometimes invest in real estate and gold. Each hybrid fund offered by the fund house has a specific objective based on which it chooses the mix of assets to invest.

Flexi-cap funds or hybrid funds: Where to invest?

The choice between flexi-cap funds and hybrid funds is a culmination of various factors. Before investing, look out for these things:

• Returns

Returns are one the primary lookouts for any investor investing in mutual funds. In the last one year, the average one-year return of flexi cap funds stood at 44.11% (as of Sept 24, 2024). On the other hand, hybrid funds, especially aggressive hybrid funds have delivered annualised returns between 16.04% and 18.35% on a three-year and five-year basis .

That said, it’s vital to look at a fund’s long-term returns. Long-term returns can help you better understand a fund’s performance, especially during market volatility.

• Risk factor

Flexi-cap funds are a category of equity funds that can invest across market caps. This can be a double-edged sword. While this offers flexibility, returns can fluctuate due to volatility. However, the element of risk in hybrid funds is a little less due to the presence of debt securities. The debt portion helps absorb market volatility.

If you seek exposure to equities but don’t want the volatility of pure equity funds, you can opt for hybrid funds.

• Investment horizon

This is another essential lookout. As flexi-cap funds are equity-oriented, they are more suitable if you have a long-term investment horizon, around 7 to 10 years or more. On the other hand, hybrid funds can fit into the scheme of things if you have a medium investment horizon of 3 to 5 years.

To put it otherwise, flexi-cap funds are more suitable for investment for long-term goals like children’s education, retirement, etc. On the other hand, hybrid funds are more apt for medium-term goals like saving for a holiday, down payment for a car, etc.

Wrapping it up

Flexi-cap funds and hybrid funds offer unique benefits to investors. While flexi-cap funds allow you to invest your money across market caps, hybrid funds give you the benefits of equities and debt. Equally essential is to factor in your financial goals before investing and ensure the fund’s objectives align with your goals.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Please read the SEBI-prescribed Combined Risk Disclosure Document before investing. Brokerage will not exceed SEBI’s prescribed limit.