Balanced Investing in 2025: Funds That Can Actually Work in Volatility
The Indian equity market is fundamentally strong and can offer immense growth potential. But it is currently navigating a period of heightened volatility owing to global trade realignments and geopolitical tensions. In such an environment, investors could sometimes make fear-based decisions – when the market dips sharply, the fear of further potential losses can push you to sell your holdings at a loss. This is called “exiting at lows”. Conversely, when a particular stock or sector is soaring, the temptation to invest more comes in. This could happen after much of the easy money has already been made, leaving you vulnerable to corrections.
Financial experts believe that, rather than trying to time the market precisely, with its daily fluctuations, a more effective strategy is intelligent asset allocation and investing in funds that offer inherent flexibility. Asset allocation is simply deciding how to divide your investment money among different asset classes, like stocks, bonds, gold, and real estate. The right mix can help cushion your portfolio during downturns and allow it to participate in growth phases.
For Indian investors seeking a balanced approach to growth, especially in a volatile environment, three actively managed mutual fund categories stand out. You can opt for a more diversified and strategically managed approach, which looks into categories like Large and Mid-Cap, Multi-Cap, and Flexi-Cap funds. The right mix can help cushion your portfolio during downturns and allow it to participate in growth phases.
Imagine a fund manager who has the freedom to invest across companies of all sizes – large, mid, and small – that’s what a Flexi Cap Fund can offer. There are no restrictions on how much they must invest in each segment. The fund manager constantly monitors the market – if large-cap companies appear to have a limited growth potential, they can shift money towards mid-cap companies or even small-cap companies, or vice versa. This active adjustment allows the fund to adapt to prevailing market conditions. A Flexi Cap fund’s ability to move between these segments means it can potentially capture opportunities wherever they arise and reduce exposure to areas facing headwinds. It removes the guesswork for you, the investor, on which segment might perform best.
Large- and mid-cap funds focus their investments primarily on a combination of large and mid-sized companies. According to SEBI rules, these funds must invest at least 35 percent of their assets in large-cap stocks and at least 35 percent in mid-cap stocks. These funds aim to capture the stability and consistent returns of large-cap companies while also participating in the higher growth potential typically associated with mid-cap companies. The fund manager can actively decide on the exact allocation within the 35%-35% minimums for each segment, based on their market outlook. By combining both, large and mid-cap funds offer a balanced approach. You get the relative safety of large companies alongside the growth potential of mid-sized ones, creating a portfolio that can navigate different phases of the market cycle more smoothly than a pure mid-cap or pure large-cap fund.
Multi-Cap Funds
Multi-Cap Funds also invest across large, mid, and small-cap companies, similar to Flexi Cap funds, but with a key difference in their minimum allocation requirements. As per SEBI regulations, Multi-Cap Funds must invest at least 25 per cent of their total assets in large-cap stocks, at least 25 per cent in mid-cap stocks, and at least 25 per cent in small-cap stocks. This ensures a diversified exposure across all three market capitalisations. The mandatory 25 percent allocation to each segment ensures that Multi Cap funds always maintain a minimum presence in large, mid, and small caps. Beyond these minimums, the fund manager has the flexibility to overweight or underweight any of these segments based on their market views.
Which Fund Suits You Best?
Choosing the right fund depends on your personal investment philosophy, risk threshold, and market outlook.
A Flexi Cap fund is well-suited for investors who value adaptability and need active fund management. This fund empowers its manager with complete freedom to invest across any market capitalisation – large, mid, or small – based on their market outlook. If you prefer to have flexibility in terms of which market segment offers the most potential at any given time, a Flexi Cap fund offers this.
A Large and Mid Cap Fund is a good choice for the investor seeking a balance between stability and strong growth potential from India Shining. This category is designed to capture the resilience and consistent returns of established large companies, while also participating significantly in the higher growth trajectory often found in mid-sized businesses. It is a good choice for those who believe in the robust growth story of Indian mid-caps but also value the foundational strength provided by leading large-cap players.
A Multi Cap Fund is for the long-term investor looking for diversification across the Indian equity market. By mandating a minimum allocation to large, mid, and small-cap segments, this fund ensures that your portfolio contains companies of all sizes. This approach is ideal if you envision a multi-faceted growth journey for the Indian economy and want your investments to benefit from leadership emerging from any market cap segment throughout various economic cycles.
Some key takeaways
- India’s volatile market demands smarter investing; avoid emotional, fear-driven decisions like selling low or chasing highs.
- Prioritise flexible fund categories that empower professional managers to adapt investments to market changes, rather than attempting to time the market yourself.
- Consider three main fund types: Flexi Cap, Large and Mid Cap, and Multi Cap – depending upon your investment goals and risk appetite.
- Your choice should align with your investment style: choose Flexi Cap for high adaptability, Large and Mid Cap for combined stability and mid-cap growth, or Multi Cap for comprehensive, long-term market participation.
- The aim is intelligent risk management through these adaptable funds, allowing you to achieve your long-term financial goals effectively.