Before we discuss what dividend yield funds are, let us understand the term dividend yield. Previously these mutual fund schemes used to be categorized as diversified equity funds, multi-cap or midcap funds, but the new category definition will help investors understand the special characteristics of this type of mutual funds. One such new equity mutual fund scheme category is “ Dividend Yield Funds”. A long horizon acts as a cushion against the volatility of equity markets and also helps you reap the benefits of compounding.As part of SEBI’s directive on mutual fund scheme rationalization and re-classification, some new scheme categories have been created to help investors understand the investment characteristics of different mutual fund schemes and make informed investment decisions. An investment horizon of more than 5 years is required while investing in these funds. So if you are an investor who has a long-term financial goal in mind like early retirement, children's education, building a house, etc., investment in a Flexi cap fund can help fulfill your goals. Investors with a Long Term Investment Horizon: While investing in any equity funds, the investment horizon should be a long one.

Investors in a dilemma: A lot of investors get confused about whether they should go for funds that invest in big companies for their relative stability or go for mid and small caps, which can give high growth but come with risk.

Also, since these investors might not be aware of the risks that come with investing in companies of a specific size, a Flexi cap fund is the best bet for them

First Time Investors: Flexi cap funds due to their diversified portfolio are ideal for first-time equity investors as it keeps the risk in control.

On the other hand, when the economy is in a slowdown, they might take a higher exposure in large cap stocks. When the economy is expanding, the fund manager can go for a higher exposure in mid cap and small cap stocks to take advantage of their fast growth. They look at the market conditions and accordingly adjust the proportion of large cap, mid cap, and small cap stocks in the portfolio of a Flexi cap mutual fund.

Now the proportion of these stocks could vary. And hence, these funds invest in large cap, mid cap, and small cap stocks. However, Flexi cap is the only category that doesn't have a defined structure by regulation on which size and sector of companies it can invest. Similarly, small cap funds can invest in companies that are ranked below 250, and so on. For example, a large cap fund can only invest in the stocks of the top 100 companies based on market capitalization. Every equity mutual fund invests the money gathered by all the investors in the stocks of companies.Īccording to regulations, mutual funds need to be specific in their investment approach.

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