Flexi-cap funds vs multi-cap funds: The large-cap bias in flexi-cap funds and what investors should do

Although both multi - and flexi-cap funds are meant to diversify your money across market capitalisation segments (large-, mid- and small-caps), multi-cap funds have largely done better than flexi-cap funds so far. Data from ACE MF show that multi-cap funds have delivered an average return of 21% over 5-year periods from 2012 to 2025, on a quarterly basis. Flexi-cap funds have given 18% return over a similar timeframe. Over 3-year return periods considered between 2016 and 2025, multi-cap funds have outperformed flexi-cap funds by 3 percentage points. As per Value Research data, multi-cap funds have outperformed flexi-cap funds in all calendar years between 2021 and 2024; in 2025, multi-cap funds underperformed flexi-cap funds only slightly.

Why do multi-cap funds appear to have an edge over flexi-cap funds? The answer might lie in these funds’ largecap exposure.

Assessing the bias

Flexi-cap funds can invest across different market segments as per the fund manager’s discretion. If the fund manager feels that, say, small-cap stocks are looking considerably risky at the moment, (s)he can choose to skip that segment entirely and focus on large-and/or mid-cap stocks. A multicap fund manager doesn’t have this flexibility. These funds must invest at least 25% each in large-, mid-, and small-cap stocks. The remaining 25% remains at the fund manager’s discretion. A closer look at their portfolios reveals that most flexi-cap funds are not really so.


The data covering monthly largecap allocations of flexi-cap funds from January 2016 to January 2026 makes this quite plain. A number of flexi-cap funds have been running 65-85% in large-cap stocks for years; some with modest variation. The six funds with the highest large-cap companies’ exposure—HDFC Flexi Cap Fund, Canara Robeco Flexi Cap Fund, Bandhan Flexi Cap Fund, Franklin India Flexi Cap Fund, Kotak Flexicap Fund, and Sundaram Flexicap Fund—all average 70% or more in the recent 2024-26 period, as per an ET Wealth analysis based on data provided by Rushabh Desai, Founder, Rupee with Rushabh Investment Services. For this study, we ignored goal-specific schemes, such as retirement, children, and so on, as well as fund of funds.

For context, the Sebi (Securities and Exchange Board of India, the capital markets regulator) definition of large-cap funds mandates that these funds must invest at least 80% in large-cap stocks. Quite a few flexi-cap funds increasingly appear to be functionally indistinguishable from that.

The spread data (difference between their maximum and minimum large-cap exposure between January 2018 and January 2026) reinforces this. For instance, Canara Robeco Flexi Cap Fund (spread of 15 percentage points over 8 years), Kotak Flexicap Fund (11 points) and Franklin India Flexi Cap Fund (12 points) have barely moved their large-cap allocation despite having the complete freedom to do so.

The pattern is consistent: the higher a fund’s large-cap allocation, the narrower its range of movement. Funds in the high large-cap cohort moved their allocation by an average of 23 percentage points over 8 years. The medium cohort moved 33 points. The most flexible funds—those with lower large-cap allocations—moved 43 points on average.

Shades of Flexi: tilt variation

Are flexi-cap funds biased towards large-caps? Some flexi-cap funds roam freely. Others barely move.

Orange = highest large-cap exposure; yellow = medium; green = low
*From January 2018 till January 2026; **From June 2024 till January 2026; Return as on 24 February 2026.
Orange-coded schemes are comprehensive; medium and low large-cap exposure cohorts are a sample only, given the large
number of schemes in each. Source: Value Research, ACE MF, Rupee with Rushabh.

Size matters

“The hard reality is that liquidity is poor in the small-cap segment,” says Meenakshi Dawar, fund manager at Nippon Life India Asset Management. “Theoretically, fund managers can move between market segments. But it’s not practical with large-sized flexi-cap funds. If a fund is Rs.50,000 crore in size and 10% of that is in small-caps, that’s Rs.5,000 crore. If this fund has 10 stocks, that’s roughly `500 crore per small-cap stock. That’s a sizeable risk,” she says. Dawar manages the Nippon India Flexi Cap Fund, which has assets of Rs.9,195 crore as of end -January 2026.

Satish Ramanathan, Chief Investment Officer (CIO) of Equity, JM Financial AMC, says that flexi-cap funds can become “a bit biased towards large-cap stocks” once they cross a size of around Rs.30,000-35,000 crore.

Is there a way out? He says that fund managers in that situation must take longterm calls when it comes to small- and mid- sized stocks. “We shouldn’t churn the portfolio much because that results in an impact cost,” he says. Aside from buying “meaningful” exposures once the size goes up, Ramanathan also reminds us of the large inflows into equity funds in 2024-25, which many funds found difficult to deploy. “Many such schemes parked money in large-cap stocks and cash. But now might just be a good time to find some good bargains in the small- and mid-cap space and get back their exposure to these segments and have a more balanced approach than what we are actually seeing now,” he adds. Ramanathan manages JM Flexicap fund.

The AUM drift

Several funds show a clear pattern of increasing large-cap allocation over time, driven not by market conditions but almost certainly by the difficulty of deploying large sums into mid- and small-cap stocks. For instance, Franklin India Flexi Cap Fund has increased its large-cap allocation from around 70% to 78% in 12 months, even as its historical average has been 74%. SBI Flexi Cap has risen sharply, from 48% in October 2024 to around 68% by the end of 2025. “The flexibility also requires a certain degree of nimbleness, but size comes in the way of that, nobody will admit,” says Deepak Chhabria, CEO and Director, Axiom Financial Services. “Beyond Rs.20,000-30,000 crore, investors may need to be mentally prepared that the flexi-cap fund may have a higher, more static exposure towards large-caps,” adds Chhabria.

Is the large-cap tilt rewarding?

Aside from safety and less volatility, the real question to ask is if a flexi-cap fund’s large-cap tilt is rewarding. After all, fund managers don’t just aim to limit the downside, they also aim to earn you returns to be able to justify their fees.

We classified all flexi-cap funds in three baskets based on their large-cap (LC) allocations: those with a high LC allocation (70% or above), those with a medium allocation of LCs (55-70%) and those with a lesser allocation to LCs (less than 55%) and checked their performance, 3-year returns and average of calendar year returns between 2021 and 2025. The high LC allocation flexi-cap funds’ 3-year average return was 18%, up from the mid LC’s 16.8% and low LC’s 17%. According to Value Research data, the average calendar-year performance of the high LC group is also the highest.

Look closer. The high LC group has an outlier: HDFC Flexi Cap Fund—an exceptional stock picker within the large-cap universe, which considerably raises the average. Take away this scheme from the cohort, and the average for this group drops.

The middle LC cohort has also given an average return over a 3-year return period. Parag Parikh Flexi Cap Fund (PPFCF) is an outlier here as well, with 20% returns. But PPFCF deploys a differentiated strategy. It holds higher levels of cash (10% on average over the last three years) and foreign securities (14% on average over the last three years). PPFCF has, in fact, held higher levels of foreign securities earlier. Quant Flexi Cap Fund is another outlier here with its differentiated momentum strategy.

“The job of an active fund is to beat its index. One should stick with flexi-cap funds even if they are large-cap tilted, as long as they are able to outperform the Nifty 500 or BSE 500 indices,” says Desai.

The scorecard: multi-cap funds lead

The Flexible Few: selective agility
In four of the last five calendar years, multi-cap funds came out ahead. A sample of flexi-cap funds that have genuinely worked their flexibility, and have been rewarded for it.

Multi-cap funds: a sweet spot

Multi-cap funds cluster tightly between 38- 46% large-cap allocation, with spreads of just 2-12 percentage points for most funds, close to what you’d expect given the 25% minimum mandate. The mandate prevented fund managers from retreating to largecap stocks during uncertainty. The result: better outcomes for investors in every bull year (See table above).

A caveat on track records. The multi-cap category, as we know it, was born only in 2020, when Sebi redrew the boundaries and required these funds to maintain the 25-25- 25 structure. Most existing multi-cap funds at the time opted to convert to the newly created flexi-cap category instead. Today’s 33 multi-cap funds are therefore relatively young, and fewer of them have long track records compared to the 39 flexi-cap funds.

That aside, many multi-cap funds also outperform their peers within the same fund houses. For instance, Nippon India Multi Cap Fund gave 14% return in 2022 and 26% in 2024, compared with a 1% loss in 2022 and a 15% gain in 2024 for Nippon India Flexi Cap Fund.

Flexibility has value

The funds that have genuinely exercised their flexibility stand apart from the pack. Motilal Oswal Flexi Cap Fund has an overall historical large-cap exposure of 67%, but dropped to 32% in November 2025, and delivered a return of 45% in 2024. It is willing to live with the consequences: -6% in 2025.

JM Flexicap Fund has swung its largecap allocation between 38% and 64% between 2022 and January 2026. Over the past five calendar years, it has averaged an impressive 21% return.

Bank of India Flexi Cap Fund has about 46% large-cap exposure and one of the better return profiles in the category.

“The highest earnings growth is in the small- and mid-cap categories, 16-17% as opposed to around 9-10% we’ve seen in the large-caps. Allocation to mid- and small- cap stocks must be there, and it makes sense if our investment horizon is 3-5 years. Any of the sunrise sectors are in the mid- and small- cap categories,” argues Ajay Khandelwal, Executive Group Vice President and Co-fund manager of Motilal Oswal Flexi Cap Fund.

Ramanathan of JM Mutual Fund says that, historically, markets have rewarded large-cap companies because they have had a lower cost of capital, could squeeze vendors for better terms, and enjoyed better margins. They also had a lower debt-to-equity ratio, he adds. “Post Covid-19, almost all companies reduced their debt-to-equity ratios, whether they were large, mid-sized or small companies. Volatility from financial leverage has diminished across all market categories, large or small. This gives fund managers a lot of room to manoeuvre around different market segments,” he says.

What should you do?

Due to an increase in the number of fund houses and the freedom to launch one scheme per category, most fund houses now offer both a flexi-cap and a multi-cap fund in their bouquets. Typically, fund houses launch schemes to fill in their product baskets, different advisers have their approaches. “Flexi cap is mostly considered a core diversified category, whereas multi cap, due to its preset design, can be a growth portfolio for the long term. Depending on the client situation and needs, we suggest and focus on the selection of funds rather than purely on the category labels,” says Ravi Kumar TV, Director, Gaining Ground Investment Services.

Ravi Kumar’s approach highlights the wide range of behaviour exhibited by funds from both categories, underscoring the complexity of fund selection.

Chhabria says both categories must be present in an investor’s portfolio, as they can follow different paths depending on market conditions. In the current market fall, multi-cap funds fell by 8.75%, compared to an 8.51% fall in flexi-cap funds, as per ACE MF data.

“I’d recommend flexi-cap funds for risk-averse investors who cannot bear much volatility that a small- and midcap presence in a fund can bring. For those who are not risk-averse and have a longer investment horizon, I don’t mind suggesting a multi-cap fund,” says Chhabria.

Khandelwal cautions against holding both schemes from the same fund house. “If two schemes from the same fund house have an overlap of 50% or more, it is just a name change. Practically, you are buying the same thing,” he adds.