SPREADING YOUR BETS

AS MARKET LEADERSHIP FRAGMENTS AND RETURNS TURN UNEVEN, ATTENTION IS SHIFTING BACK TO DIVERSIFIED EQUITY FUNDS, WHICH BALANCE GROWTH WITH STABILITY

- BY RIDDHIMA BHATNAGAR

INDIA'S EQUITY MARKET is entering a phase where returns are no longer uniform and leadership is becoming more dispersed. The result is that investors are rediscovering the charm of diversified equity funds, including flexi-cap, multi-cap, and large & mid-cap schemes, which blend growth potential with risk control. There is now a shift from chasing “top-performing” categories to seeking risk-adjusted, consistent returns.

According to Value Research data as of October 15, over the past year, about 46% of flexi-cap funds in the diversified equity category outperformed their benchmarks. In comparison, around 37% of multi-cap funds and 47% of large & mid-cap funds delivered returns higher than their benchmarks.

“Selective, bottom-up stock picking and concentrated bets in quality companies will matter more. In this environment, diversified funds can do well because they can pick winners across caps and sectors,” says Chandraprakash Padiyar, Senior Fund Manager, Tata MF.

For much of the post-pandemic period, investors poured money into high-beta categories, small- and mid-cap funds, thematic plays, and even new-age sectors funds such as manufacturing and public sector undertaking (PSU). But as those rallies stretched valuations, the focus began to shift toward stability.

“Earlier, defence, and small caps were outperforming by a mile. But not anymore. Investors have noticed that the dispersion of returns is wide and unpredictable. That's why flows are now moving to diversified categories like flexi-cap and multi-cap funds, which are best suited as 'core holdings' for investors” says Aashish Somaiyaa, CEO, WhiteOak Capital MF.

Diversified equity funds, unlike single-theme or single-cap strategies, invest across sectors and market capitalisation. Within this umbrella, flexi-cap, multi-cap, and large & mid-cap funds each play distinct roles.