As one of the largest categories with relatively non-restrictive mandates, flexi cap funds have been quite popular with investors. Given that there are no rigid rules in market cap allocation in the portfolio, flexi caps give fund managers a fairly large universe to invest in over the long term.

A well-known fund manager of the 1990s and early 2000s, and later as a portfolio manager operating from Singapore, Samir Arora’s Helios is coming out with a new fund offer – Helios Flexi Cap – that opened for subscription on October 23 and closes on November 6.

Flexi cap funds are the most recommended funds from advisors and financial planners as they cater to goals of a wide range of investors looking to reach financial goals over the long-term.

Should you invest in the Helios Flexi Cap NFO? Read on to take an informed call.

What’s the NFO about?

As far as flexi cap funds go, they are free to invest across the broader markets. Helios Flexi Cap will largely look to play all the broad macro and demographic trends that are prevalent in India. This is not unlike most other equity funds in this or any other category.

One key differentiator as far as the Helios fund is concerned is its elimination based screening method to select stocks. The fund’s focus is more on eliminating poor firms from the stock universe via an eight-factor process to arrive at a suitable investible set.

The eight factors in sequence are: bad theme, unfavourable industry dynamics, potential for disruption, weak management background, poor corporate governance, low-quality accounting, negative medium-term triggers and unreasonably high valuations.

On each of these factors, companies in the overall universe are rated bad, not bad and good.

Even a single bad rating in the first six factors will automatically eliminate a stock from the investible set. Since it may not be possible to get a good rating on all eight factors for all stocks, there fund manager may accept a ‘not bad’ rating on a factor or two for a firm that otherwise passes all other hurdles.

Another interesting point is that the fund considers a long-term view as a series of 1-3-year short-term views. So, if a company delivers well, it can be held on for another 1-3 years and so on.

There will be no specific style bias as value, quality, growth and so on.

The longer-term play is on India’s rise on the back of digitisation, infrastructure growth, financialisation of savings, demographics, China-plus one gains and general economic growth.

What investors should do

Flexi cap funds serve as ideal long-term investment vehicles. Data from ACE MF show that these funds on an average hold 66.4 per cent of their portfolio in large caps, 15.5 per cent in midcaps and 8.4 per cent in small caps, while the remaining portion is cash or debt and others, as of September portfolios.

This wide diversification and mix of market caps that is tilted towards large-cap provides a certain degree of comfort from being hurt seriously during market falls or heavy volatility. This large cap tilt also means that they may underperform at times when mid and small caps rally as they have over the past couple of years.

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However, barring select schemes, most flexi cap funds have found the going challenging in terms of being able to beat benchmarks such as the BSE 500 TRI or Nifty 500 TRI across timeframes – 1, 3, 5 and 10-year periods.

In this regard, Parag Parikh Flexi Cap and HDFC Flexi Cap are among the best.

Investors having a high-risk appetite and looking to explore newer avenues – largely riding on the Helios founder – can consider investing small amounts as SIPs in the Helios Flexi Cap fund. Others can wait for the fund to develop a track record before opting in.