Flexicap funds: Freedom to shift across market caps helps mitigate risks

Flexicap funds witnessed net inflows of ₹ 5,733 crore in June 2025, a 49 per cent increase over May, according to data from the Association of Mutual Funds in India (Amfi). The surge reflects growing investor preference for agile funds that can handle volatility.

 

Rising investor interest 

Recent turbulence in mid- and small-cap segments has prompted a shift towards flexicap funds. “Flexicap funds have gained traction in 2025 due to their ability to dynamically allocate across large-, mid-, and small-cap stocks, offering adaptability in volatile markets,” says Trideep Bhattacharya, chief investment officer – equities, Edelweiss Mutual Fund.

 

Mid- and small-cap valuations remain elevated. “Many flexicap funds are currently overweight on large caps. Investors seeking relative safety are choosing these funds,” says Mohit Gang, co-founder and chief executive officer (CEO), Moneyfront.

 

Recent outperformance by some leading flexicap schemes has also contributed to higher inflows. 

 

Score on flexibility and adaptability 

Flexibility and adaptability are their biggest strengths. Unlike large-cap (85 per cent) and mid- or small-cap funds (65 per cent), which must maintain a minimum allocation to their categories, flexicap funds face no such constraints.

 

“Flexicap fund managers can adjust exposure across market segments without restrictions to capitalise on emerging opportunities,” says Vaibhav Shah, head – products, business strategy & international business, Mirae Asset Investment Managers (India). They can adjust exposure to market caps based on valuation comfort and growth outlook. 

 

These funds offer diversification. “Investment across market caps reduces the concentration risk carried by single-market-cap funds,” says Gang.

 

These funds balance the stability of large caps with the growth potential of mid- and small-caps. “This approach can mean steadier returns, more in line with broader market returns,” says Hari Shyamsunder, vice president and institutional portfolio manager – EME India, Franklin Templeton India.

 

These funds have demonstrated lower volatility. “The five-year standard deviation of the flexicap category is 14 versus 16 for mid-cap, 18 for small-cap, and 23 for multi-cap (as on 30 June 2025),” says Abhishek Tiwari, executive director and chief business officer (CBO), PGIM India Asset Management Company.

 

What to watch out for 

Flexicap funds rely heavily on fund manager decisions. “If the manager’s market calls go wrong, returns may suffer,” says Rajani Tandale, senior vice president, mutual fund, 1 Finance.

 

Frequent churn can increase costs. Gang points out that some funds carry higher expense ratios. Bhattacharya points out that these funds may underperform in a bull run compared to pure mid- or small-cap funds.

 

“Some flexicap funds are run as closet large-cap funds, which defeats the category’s purpose,” says Gang. Tiwari adds that not all flexicap funds may provide meaningful exposure to mid- and small-caps.

 

Large fund size can affect agility. “As some of the funds become very large, they are not as nimble as funds with lower AUM,” says Shah.

 

Who should invest 

Flexicap funds suit investors who prefer to delegate market-cap allocation decisions to a professional. “They are suitable for investors seeking a one-stop equity solution that combines growth and stability,” says Bhattacharya. New investors can have them as a core holding. Shah says they are useful for those looking to avoid the high volatility of pure mid- or small-cap funds.

 

“Investors seeking greater control on the market-cap decision based on their risk appetite may want separate large-, mid- and small-cap funds,” says Shyamsunder.

 

Conservative investors may allocate 15–30 per cent to flexicap funds, while aggressive or experienced ones may go higher. Tandale recommends a 7–10-year horizon to benefit from market cycles.