Mutual fund options can be explored for meeting financial goals ranging from short-term to long-term while choosing to invest in a wide range of products across the asset class. Here is one mutual fund product category that investors can look for investing in meeting long-term wealth creation goals.
Flexi-cap funds are open-ended equity funds investing at least 65% of total assets in equity assets of companies across the different market capitalizations viz., large-cap, mid-cap or small-cap fund. UTI Flexi Cap Fund is one of the oldest funds in the category (launched in 1992) and has a long-term track record of consistent performance.
The Fund has a corpus of over Rs. 26,396 crores (as of July 31, 2024). This offering from UTI Mutual Fund is suitable for any long-term investor looking for a fund that endeavours to invest in quality businesses that have the potential to create economic value for investors.
UTI Flexi Cap Fund’s investment philosophy is built around the three pillars of Quality, Growth and Valuation. The portfolio strategy would be to focus on businesses that can show strong growth for a long period and are run by seasoned management.
“Quality” signifies the ability of a business to sustain a high Return on Capital Employed (RoCE) or Return on Equity (RoE) over a long period. Truly high-quality businesses are those that can generate high RoCEs and also RoEs even during difficult times for their respective industries or sectors and therefore operate above their cost of capital at all times.
More often than not, a business with a high RoCE/ RoE shall be able to generate strong cash flows and these strong cash flows become the source of economic value creation. “Growth” on the other hand signifies long-term secular growth for the business.
The fund emphasizes businesses that have steady and predictable growth trajectories rather than cyclical and volatile growth. Cyclical growth or de-growth can be very sharp and unpredictable and can surprise investors in either direction, as against secular growth where there is relatively more certainty in understanding the long-term drivers and hence future outcomes.
The last pillar of the fund’s investment philosophy is “Valuations”. Valuations are an important metric as an entry point into a great business and therefore one should very carefully study this before entering a stock.
Although a Price-to-earnings (P/E) multiple is a good starting point for understanding the valuations of a business, it is also a widely misunderstood valuation technique.
More often than not, a high RoCE and high growth business creates more value over the long-term and would hence mathematically deserve a higher P/E. It would still be an attractive investment for long-term investors who invest based on business fundamentals rather than based on what would outperform in the next few months or quarters.
The scheme’s top ten holdings consist of ICICI Bank Ltd., HDFC Bank Ltd., Bajaj Finance Ltd., LTIMindtree Ltd., Infosys Ltd., Avenue Supermarts Ltd., Kotak Mahindra Bank Ltd., Info-Edge (India) Ltd., Zomato Ltd., And Coforge Ltd., which account for around 41% of the portfolio’s corpus as of July 31, 2024.
UTI Flexi Cap Fund is suitable for those equity investors looking to build their “core” equity portfolio and seeking long term capital growth through investment in quality businesses that generate economic value. Investors with moderate risk profile and looking to invest for at least 5 to 7 years to meet a long-term financial goal, may consider investing in this fund.
