Are Flexi cap funds fading — or flexing through the volatility? Expert says do not look at declining NAVs

In the ever-fluctuating world of equity mutual funds, Flexi Cap funds have shown remarkable resilience, maintaining their appeal amidst recent market volatility. Despite some concerns about their performance, these funds have consistently delivered substantial returns over the years, making them a reliable choice for investors seeking diversified exposure in a turbulent market.

Recently, B Padmanaban, a Certified Financial Planner, highlighted that the flexi cap funds have dipped in recent months. 

In light of recent corrections in benchmark indices such as the Nifty 50 and Nifty 500, which have seen declines from their all-time highs, questions have arisen about the robustness of Flexi Cap schemes.

However, as Arjun Guha Thakurta, Executive Director at Anand Rathi Wealth Limited, pointed out, “Some may point to the decline in NAVs from their all-time highs as a sign of weakness, but it’s important to understand that the broader market itself has corrected since September 2024.” This perspective underscores the importance of considering market-wide trends when evaluating fund performance.

Guha Thakurta further clarified that “Flexi Cap funds, with significant exposure to large-cap stocks, have mirrored this broader trend.” Notably, 33 out of 41 Flexi Cap funds allocate more than half of their portfolios to large-cap stocks, aligning with the market’s movements. This strong alignment with stable large-cap stocks has allowed Flexi Cap funds to weather downturns more effectively than mid-cap or small-cap funds.

The adaptability of Flexi Caps is a crucial factor that allows them to outperform traditional benchmarks. Over the last three years, a significant number of these funds have surpassed the Nifty 50, and in the past year, 65% have outperformed the Nifty 500. As Guha Thakurta emphasised, “Flexi Caps are all about smart allocation. This flexibility has helped most funds in this category outperform traditional benchmarks.” This adaptability is particularly valuable during periods of market volatility, offering a strategic advantage.

Investor sentiment remains optimistic, as evidenced by the continued strong inflows into Flexi Cap funds. “The inflow numbers speak for themselves. These funds provide not just returns, but also adaptability, which is crucial in today’s market,” noted Guha Thakurta. This indicates sustained confidence in the category’s potential to deliver long-term returns, even amidst short-term volatility.

During the period between 2019 and 2024, Flexi Cap funds achieved an average alpha of 5.58% over their benchmarks, outperforming many diversified equity funds. This strong track record has attracted significant investor interest, with Flexi Cap funds drawing inflows of Rs 5,615 crore in March, Rs 5,541 crore in April, and Rs 3,841 crore in May 2025. The Parag Parikh Flexi Cap Fund emerged as the top gainer, receiving Rs 15,863 crore, followed closely by the HDFC Flexi Cap Fund with Rs 11,660 crore. These figures highlight the growing confidence in Flexi Cap funds as a robust investment option.

Source: Value Research

Investors should note

However, experts caution against relying solely on Flexi Caps for equity exposure. Due to their large-cap bias, these funds may offer limited diversification. “While Flexi Cap funds are great for core exposure, investors shouldn’t rely on them as their sole equity investment. Due to their large-cap bias, diversification could be limited,” advised Guha Thakurta. A balanced portfolio should include a mix of large-cap, mid-cap, and small-cap funds to optimise risk and reward. This diversified approach can help mitigate risks associated with market fluctuations.

In conclusion, the recent performance of Flexi Cap funds should be viewed as a reflection of broader market dynamics rather than a deficiency in the category. Their ability to adapt and deliver long-term alpha remains intact, reinforcing their position as a fundamental component of a diversified equity portfolio. Investors are encouraged to look beyond short-term market movements and focus on the enduring strengths of Flexi Cap funds.