Flexi cap mutual funds, which are known for giving fund managers the flexibility to invest across large-, mid- and small-cap stocks, have had a subdued year.
Data shows that not a single flexi cap fund delivered double-digit returns over the past year. The best-performing scheme, Quant Flexi Cap Fund, returned 9.91%, while only five funds managed to generate returns above 8%.
The broader category also struggled. The average flexi cap fund generated a return of just 0.82% over the past year. Of the 40 schemes in the category, 33 delivered less than 5% returns, while 19 posted negative returns.
Large-cap exposure weighed on performance
The muted performance was largely driven by market conditions rather than poor stock selection, according to experts.
Hrishikesh Palve, Director at Anand Rathi Wealth, said flexi cap funds, despite their investment flexibility, continued to maintain a significant allocation to large-cap stocks, which underperformed during the period.
“As of June 2026, the category had an average allocation of around 55% to large caps, while exposure to mid-cap and small-cap stocks stood at about 19% each,” he said.
This proved to be a headwind because market leadership shifted away from large-cap stocks. Over the past year, the Nifty 50 declined 4.5% and the Nifty 100 fell 3%, while the Nifty Midcap 150 gained nearly 5% and the Nifty Smallcap 250 rose around 1%.
As a result, funds with relatively higher allocations to mid- and small-cap stocks performed better. Palve pointed to schemes from Bank of India, Navi, ICICI Prudential and Aditya Birla Sun Life, which benefited from higher exposure to these segments. Quant Flexi Cap Fund, the category’s top performer, also gained from its sector positioning.
However, he stressed that the category’s weak one-year returns should not be interpreted as poor fund management.
“Flexi cap funds have still generated an average alpha of around 1.8 percentage points over their benchmark during the last one year, showing that active fund managers added value despite a difficult market environment,” he said.
Rishabh Garg, CEO of FundsIndia, said the broader market correction has been the biggest reason behind the subdued returns.
“Flexi-cap funds by design can move across large, mid and small caps. All three segments have gone through a tough phase over the last year, largely because of a valuation correction after the sharp run-up in the broader market. When the market itself is struggling to generate returns, the category will naturally reflect that,” he said.
One year isn’t enough to judge performance, say experts
Experts believe investors should avoid taking investment decisions based solely on one year’s performance.
Palve said equity markets move in cycles and leadership shifts across market-cap segments over time. While the category has struggled over the past year, flexi cap funds have delivered an average return of 11.5% over the last five years, highlighting their long-term wealth creation potential.
“A temporary phase of underperformance is not a reason to worry, especially when it is driven by the broader market rather than poor fund management. Investors should review their investments only if there is a consistent pattern of underperformance across market cycles,” he said.
Garg agreed, noting that flexi cap funds should ideally be evaluated over a five- to seven-year investment horizon.
“One weak year is noise, not a signal to act on. The bigger risk is usually not the fund’s return in a given year, but an investor reacting to it by exiting at the wrong time,” he said.
Palve also advised investors to build diversified portfolios instead of relying on a single equity fund category. Along with flexi cap funds, investors can consider large and mid-cap, multi-cap, mid-cap and small-cap funds to achieve balanced exposure across market cycles.
For long-term investors, experts say the latest one-year performance reflects an unusually challenging market environment rather than a structural weakness in the flexi cap category.