Large caps outperform flexi cap mutual funds as mid- and small-cap valuations stay stretched

Parag Parikh Financial Advisory Services (PPFAS) is preparing to file papers for a new Large Cap Fund that has long preferred a conservative product suite. At the 2025 Unitholders’ Meeting, the management underlined that the upcoming offering will be a low-cost, diversified product aimed at investors who value index-like stability with selective active calls.

For a fund house that has, for years, operated with only two equity schemes, a flexi-cap fund and an ELSS, the move into the large-cap space signals both a strategic shift and an acknowledgement of investor appetite.

How large-cap funds have been performing

Over the past several years, India’s large-cap category has delivered a risk-adjusted performance, with the top 10 large-cap funds, ranked by AUM, delivering around 10-12% returns over the past one year.

ICICI Prudential Large Cap Fund leads with a 12.36% one-year return, supported by a strong longer-term track record of 18.49% in 3-year and 19.97% in 5-year on an AUM base of over Rs 75,000 crore. An investment of Rs 10 lakh investment made at inception (23 May 2008), would have grown to nearly Rs 1.13 crore by October 31, 2025, at a compounded annual growth rate (CAGR) of 15%. A similar investment in the scheme’s benchmark, Nifty 100 TRI, would have yielded 68.9 lakhs, representing a CAGR of 11.3%.

According to Anish Tawakley, Co-CIO – Equity and the fund manager of the scheme, for any company to be a part of this portfolio, a company has to have a demonstrated track record of profitability, should be a market leader, and present reasonable compounding potential.

Further, when it comes to large caps and its relative attractiveness, Anish believes, “Given the sharp run-up and stretched valuations in parts of the mid and smallcap space, it is necessary that investors to be cautious and consider rebalancing towards large caps. This is because large caps today are likely to offer better risk-adjusted return in the current market setup.”

Other category heavyweights such as Nippon India Large Cap Fund have given 11.18% one-year and 22.42% in five-year. Followed by Mirae Asset Large Cap Fund which has given 11.65% in one-year and 15.41% in five-year.

How large cap compare with flexi-cap funds 

While large-cap funds invest at least 80% of their assets in large-cap companies, focusing on stability and lower volatility, flexi-cap funds invest in a mix of large, mid, and small-cap companies with a minimum of 65% in equity and equity-related instruments.

When matched against corresponding flexi-cap schemes, an interesting return differential emerges. While large caps delivered 10-12% over the last year, several house-specific flexi-cap funds lagged their large-cap counterparts.

ICICI Prudential Flexicap, for instance, returned 11.70%, trailing its large-cap sibling. SBI Flexicap Fund delivered 7.23% versus SBI Large Cap’s 9.73%.

The contrast is sharper at Nippon India, where the flexi-cap scheme generated 5.91%, significantly lower than the large-cap fund’s 11.18%.

HDFC Flexi Cap has given the highest return at 13% over the period of one year.

This divergence underscores a broader trend. In recent market phases dominated by mega-cap and sector leaders, large-cap strategies despite being more passive and benchmark-linked have outperformed many flexi-cap funds that struggled with their mid- and small-cap allocations.

For investors seeking predictable returns with lower volatility, large caps have delivered greater reliability, closely shadowing benchmark performance. Flexi-cap funds deliver higher upside in strong mid- and small-cap phases, but often with greater volatility.

With PPFAS entering the fray, the large cap may see renewed attention as given the sharp run-up and stretched valuations in mid and smallcap space, investors may consider rebalancing towards large caps.