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More and more investors are opting for mutual funds, as they offer flexibility, diversification, convenience, and lower costs. This is reflected in the AUM growth of the mutual fund industry, which has crossed Rs 66.7 lakh crore in August 2024—its highest AUM according to the monthly figures released by the Association of Mutual Funds in India (AMFI). According to a study, investor preference for choosing mutual funds over other means of investment, such as bank deposits, is growing. Overall, the AUM of mutual funds has increased to over 31% of the size of bank deposits.

So, why are mutual funds such an interesting investment option? One reason is that they provide investors with the opportunity to invest in 11 equity-oriented categories, including multi-cap, large-cap, mid-cap, small-cap, value funds, sectoral funds, ELSS, and flexi-cap funds. Among these variants, the most popular category based on the size of assets is flexi-cap mutual funds. Flexi-cap funds are versatile, as they allow for investments in securities across various market capitalizations—small-cap, mid-cap, and large-cap stocks. This flexibility enables investors to optimize returns by strategically allocating investments based on economic and market conditions for long-term capital appreciation.

So, is the returns of Flexi constant across all the schemes?

Not really. It depends on the diversified investment strategy, market performance, and stock picking of each fund house. Every fund house has its own investment strategy or approach to Flexi Cap Fund allocation. However, one approach that really stands out to me is the "Megatrends" strategy used by Bajaj Finserv AMC.

Megatrend is a robust and credible long-term investment strategy that encompasses almost everything a true, active investor seeks. It identifies companies that align with the prevailing tailwinds removing any behavioural biases, and enables a framework to counter any future volatility in an effective manner. It looks at significant, widespread changes with a significant long-term impact on economies, industries, and societies. These shifts arise from fundamental changes in technological, regulatory, economic, nature/ environmental demographic and social shifts driving new opportunities and challenges. Megatrends have broad influence, shaping various sectors and sparking transformative innovations. It often cut over national boundaries and socioeconomic conditions, helping investors to map their growth trajectories for their portfolio.

So what trends for Flexicap are identified by Megatrends

One of the major megatrend takeaways is technology digitization and transformation. A prime example is UPI, which is expected to surge digital transactions, with projections estimating that UPI transactions could reach $3 trillion by 2026. Companies in fintech, e-commerce, and digital services are poised to benefit, making them crucial candidates for Flexi Cap fund investments.

Another important area is on Manufacturing. The PLI Scheme aims to bolster manufacturing by making the country a global manufacturing hub. This push is expected to drive growth in the electronics, pharmaceuticals, and automobile sectors. Flexi Cap funds can leverage this opportunity by investing in companies well-positioned to benefit from this manufacturing resurgence.

Similarly, megatrends have shown that environmental awareness is increasingly influencing business strategies worldwide. India’s electric vehicle (EV) production is expected to jump from 0.6 million units in FY21 to around 16.9 million units by FY30. Investments in green technologies, renewable energy, and sustainable businesses offer long-term growth opportunities for Flexi Cap funds, which can invest across these industries, contributing to both returns and sustainability.

Additionally, there is an expectation of a 2.7-fold increase in the e-commerce customer base by FY25. While, rising consumerism and urbanization have driven spending in sectors like food and entertainment. This presents an attractive investment opportunity for Flexi Cap funds, as companies catering to the growing middle class and urban consumers are likely to remain in demand.

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