Flexicap funds gain favour as investors exit smallcaps amid correction

Category logs highest net inflows for four consecutive months, adds most number of folios in March, April

With changing market conditions, investor interest is beginning to shift from smallcap and midcap (SMID) funds to largecap-oriented schemes, particularly flexicap funds. Flexicap funds have led the active equity inflows chart (excluding the thematic category) for the past four months, with the gap widening in recent months.

 

In April, flexicap funds saw net inflows of ₹5,542 crore — 39 per cent more than smallcap funds, which registered the second-highest inflows at ₹4,000 crore.

 

Flexicap and largecap funds — two of the relatively lower-risk categories — have together drawn more inflows than smallcap and midcap funds in each of the past four months.

 

This marks a departure from the trend seen in recent years, when SMID funds captured the bulk of inflows.

 

Flexicap funds have also taken the lead in new investment account, or folio, additions. The category added nearly 300,000 folios on a net basis in April, compared with 216,556 and 131,100 additions in midcap and smallcap funds, respectively.

 

The shift comes amid a market correction that has been sharper in the SMID space. As a result, short-term performance — especially systematic investment plan returns — of largecap and flexicap funds now surpasses that of SMID schemes.

 

“After the market corrections since September 2024, companies with stronger fundamentals are available at relatively better prices, and investors believe this is a good time to invest in such firms. Also, largecaps are seen as offering a cushion in volatile times. SMIDs have corrected as well, making flexicap funds more attractive, as their combination of large, mid, and smallcap exposure makes them a prudent choice in the current environment,” said Vaibhav Chugh, director and head of sales, WhiteOak Capital Asset Management Company. 

 

As of end-April, the largecap-oriented Nifty 50 index was down 7.2 per cent from its peak. In comparison, the Nifty Smallcap 100 and Nifty Midcap 100 were down 16.3 per cent and 11.1 per cent, respectively. The Nifty 500 index — the benchmark for flexicap funds — was down 10.1 per cent from the all-time high seen in September 2024.

 

According to experts, the recent performance of flexicap schemes has been a key driver of renewed interest.

 

“The flexicap category has delivered strong relative performance over the past year, with many schemes outperforming largecap and midcap funds. This track record has lifted investor confidence and driven inflows, as both retail and institutional investors look for diversified exposure with the potential for better risk-adjusted returns,” said Nehal Meshram, senior analyst — manager research, Morningstar Investment Research India.

 

Flexicap funds have also been among the recommended categories, given the flexibility they offer fund managers in navigating market volatility.

 

“Flexicap funds continue to stand out as a prudent choice in the current market environment. Their inherent flexibility allows fund managers to dynamically navigate between large, mid, and smallcap segments based on evolving market conditions and valuation opportunities,” said Ankur Punj, managing director and national sales head, Equirus Wealth.

 

While flexicap funds can invest across large, mid, and smallcap stocks in any proportion, most schemes maintain a largecap tilt. On average, about 60 per cent of their portfolio is allocated to largecaps.