What are Flexi-cap funds?
Investors who have Flexi cap funds do not have to worry about any restrictions regarding investing in companies with predetermined market capitalizations. We can find the structure of these mutual funds in their prospectus. Fund managers can agree that Flexi-caps can give them more options and diversification opportunities compared to others. And since we are already comparing, we stress that Flexi-cap funds do not have any problems regarding the size of companies. You can invest in any company using Flexi caps. The same is not valid with other funds like mid-cap and small-cap funds.
Companies and their respective market caps
But first, what is market capitalization? It refers to the outstanding shares of the company’s total dollar market value. Now, you may have heard of the term “market cap.” You should know that it means the same and it is just a shorter version.
How does one calculate it? We can take the company’s outstanding shares and multiply that by the current market price of its single share. Market cap is one of the many ways mutual funds use to choose companies they can invest in. In fact, it is the most common way that mutual funds use. Market cap tells us how big the company is, and that factor is a significant determinant of many characteristics that may spark the interests of many investors aside from risks.
Let us enumerate the different sizes that companies may fall under:
- Small-cap. These companies have the least market cap, which is between $300 million and $2 billion. They are fresh in their respective industries. Hence, they pose more risks to the market they serve due to their age. Most people cannot argue that smaller companies tend to have lesser resources. Hence, they are more prone to crumble during economic slowdowns and downturns.
- Mid-cap. These are companies with market caps between $2 and $10 billion. Their expansion is still ongoing, and investing in them means higher risk than large-cap companies that are more established. Investors who are interested most likely believe that the company has massive potential for growth.
- Large-cap. These are companies with $10 billion market caps or more. These companies are most likely around in their respective industries for a long time now that they have become significant players already. Investing in these companies might not bring you massive returns right then and there. However, they generally give rewards such as a consistent increase in dividend payments and share value to their loyal investors.
What have we learned so far today?Flexi-cap funds are mutual funds that allow investing in companies with a predetermined market capitalization, unlike other funds that restrict this kind of investment. And when we say other funds, we may be referring to mid-cap funds and small-cap funds. There are constraints in investing regarding the size of the company. Investors can invest in any company through Flexi-caps, and the size is not too relevant. Fund managers benefit from these funds that offer more investment options and possibilities of diversification.