Is the retail investor fancy for Flexi Cap Funds really justified?

21 Jan 2026 , 02:35 PM

FLEXI CAP FUNDS – SHOULD YOU BE WORRIED?

Investors have poured money into flexi-cap funds in the last few months. As a share of flows, flexi cap funds alone accounted for 23.1% of all active equity fund flows in the year 2025. But we will come back to that later. The big question is whether the flexi-cap returns really justify this kind of euphoria. There are 11 categories of active equity funds and out of that flexi-cap funds alone attracted nearly one-fourth of the total flows in 2025. That is surely something, but let us spend a minute on understanding what are flexi cap funds?

Flexi cap funds as a category were launched only in November 2020. Prior to that there was only multi-cap funds, which invested in a combination of large cap, mid-cap, and small cap stocks. However, there was total flexibility in allocation. SEBI felt that the name multi-cap was misleading and hence made it mandatory for multi-cap funds to allocate at least 25% to each category (large caps, mid-caps, and small caps), with leeway on the last 25%. Funds that did not want this rigidity had to change their nomenclature to Flexi Cap funds. In the last 5 years, the AUM of these flexi cap funds has grown to a record ₹5.51 Trillion.

LOOKING AT THE ACTUAL FLOWS INTO FLEXI CAP FUNDS

We will use monthly flows in year 2025 as a proxy to understand flexi-cap flows.

Month	Flexi Cap Flows	Total Equity Flows	Flow Share
Dec-25	10,019	28,054	35.71%
Nov-25	8,135	29,911	27.20%
Oct-25	8,929	24,690	36.16%
Sep-25	7,029	30,422	23.10%
Aug-25	7,679	33,430	22.97%
Jul-25	7,654	42,702	17.92%
Jun-25	5,733	23,587	24.31%
May-25	3,841	19,013	20.20%
Apr-25	5,542	24,269	22.84%
Mar-25	5,615	25,082	22.39%
Feb-25	5,104	29,303	17.42%
Jan-25	5,698	39,688	14.36%
Total	80,978	3,50,151	23.13%
Data Source: AMFI (Figures are ₹ in Crore)

As can be seen in the above table, flexi-cap funds started at 14.36% of total active equity fund flows in January 2025 and closed 35.71% in December. Over the year, flexi-cap funds accounted for nearly one-fourth of the total active equity fund flows, which is surely significant, because this does not include multi-cap funds. What does this indicate?

The good news is that mutual fund investors are moving out of taking alpha risks on sector funds, thematic funds and moving to more allocation-based funds like flexi-cap funds and multi-cap funds. This is a good signal as alpha hunting funds have long and big drawdowns. But the bigger question is whether investors are being well compensated by flexi-cap funds?

HOW DID FLEXI CAP FUNDS PERFORM IN INDIA?

Here is a quick summary of the top 20 flexi-cap funds with 5-year track record and ranked by 5-year CAGR returns.

Flexi-Cap Scheme Name	Returns (%) 1-Year	Returns (%) 3-Years	Returns (%) 5-Years	Info Ratio (5-Years)
HDFC Flexi Cap Fund	13.17	21.58	22.45	1.32
Quant Flexi Cap Fund	-0.81	14.86	21.00	0.73
Bank of India Flexi Cap Fund	1.39	21.34	20.90	0.85
Parag Parikh Flexi Cap Fund	7.42	21.47	19.55	0.46
JM Flexi Cap Fund	-5.72	20.34	19.04	0.83
Edelweiss Flexi Cap Fund	8.05	20.21	18.38	1.03
Franklin India Flexi Cap Fund	4.88	17.96	17.67	0.74
HSBC Flexi Cap Fund	3.21	19.10	16.15	0.36
Aditya Birla Sun Life Flexi Cap Fund	11.03	18.41	15.47	0.15
Union Flexi Cap Fund	5.45	15.64	15.21	0.09
Kotak Flexi Cap Fund	10.94	16.89	15.19	0.10
DSP Flexi Cap Fund	4.78	18.18	15.10	0.04
Canara Robeco Flexi Cap Fund	7.73	15.86	14.75	-0.05
Navi Flexi Cap Fund	5.56	13.85	14.51	-0.11
Bandhan Flexi Cap Fund	8.54	16.14	14.46	-0.12
Motilal Oswal Flexi Cap Fund	0.72	22.55	14.37	-0.03
PGIM India Flexi Cap Fund	5.54	13.61	14.16	-0.17
Tata Flexi Cap Fund	8.76	17.35	14.02	-0.24
SBI Flexi Cap Fund	4.99	14.04	13.27	-0.43
LIC MF Flexi Cap Fund	0.65	15.66	12.11	-0.49
Data Source: AMFI (3-Year, 5-Year returns are CAGR)

Before we get into the performance of flexi-cap funds, here is a quick macro picture of the sample. There are a total of 44 flexi-cap funds in India managing around ₹5.51 Trillion as of end December 2025. Out of these, we have only considered 24 funds with 5-year track record, so that we are able to take a longer-term perspective. These 24 funds manage around ₹4.72 Trillion, which is 85% of the total AUM of flexi-cap funds. Now for returns.

What were the returns that investors would have earned in these 24 flexi-cap funds on an average across different time frames? Over a 1-year period, the average returns were 4.47%, while the returns were 16.94% CAGR over 3 years, and 15.50% CAGR over 5 years. In short, investors have had a good run over the last 5 years by allowing the flexible mix of large caps, mid-caps, and small caps at the discretion of the fund manager.

KEY INSIGHTS FOR INVESTORS IN FLEXI-CAP FUNDS IN INDIA

Here are some key takeaways for small and medium sized investors putting their hard-earned money into flexi-cap funds.

• Investors must appreciate that when they invest in flexi-cap funds there are multiple risks. There is the risk of investing in equities at elevated levels of the Nifty. In addition, there is also the risk of fund manager flexibility. The mix of large caps, mid-caps, and small caps is entirely at the discretion of the fund manager.
• Out of the 20 funds listed above 12 funds have positive Information Ratio, while 8 have negative Information Ratio. Positive Information Ratio means that the fund is earning more than what the investor should ideally get for the risk taken. While past data may not be always reflective of future, it is a good idea to stick to positive Information Ratio.
• Investors often wonder if it is the right time to invest in flexi-cap funds with Nifty and Sensex close to highs. Small investors must not time the market, because it is not possible to time markets. A better way is to adopt a systematic investment plan (SIP) approach, so that the rupee cost averaging works in your favour.

The moral of the story; there is a big flow into flexi-caps and there is a method to the madness. Investors must just keep the 3 insight points made above for flexi-cap funds.

Summary Flexi cap funds offer a structured way to participate in a mix of large cap, mid-cap, and small cap stocks. The fund manager has the full discretion, so they can allocate funds to the class of stock where they see the maximum potential in the future. However, investors in flexi-cap funds must keep a few basic things in mind. Past returns may not be a guarantee, but they are your best protection. Use information ratio to assess flexi-cap funds and adopt a SIP approach. You are likely to be better off!