Flexi cap mutual funds dominate inflows for third straight month. Are investors seeking all-cap advantage?

Time of India

5 hours ago

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Flexi cap mutual funds have emerged as a clear favourite among equity mutual fund investors, topping the inflow charts for the third consecutive month. In May, flexi cap funds once again led the equity inflow chart, continuing the trend seen in March and April.According to the latest data by the Association of Mutual Funds in India ( AMFI ), in terms of inflows , this fund category has consistently outperformed its peers by receiving the highest inflow of Rs 14,998 crore in three months.Experts attribute this surge in inflows to a trend among investors increasing their preference towards diversified categories, and flexi cap is one such category which does not have any market cap constraints.'This flexibility provided to the fund managers is one of the reasons why they are able to generate alpha comfortably, which is fueling the inflows. Unlike multi-cap funds, which are mandated to invest a fixed portion (minimum 25%) across large, mid, and small-cap stocks, flexi cap funds allow fund managers to dynamically shift allocations based on market conditions,' Chethan Shenoy, Executive Director and Head - Product & Research at Anand Rathi Wealth Limited shared this with ETMutualFunds.Echoing a similar opinion, another expert mentions that the investment strategy of flexi cap funds enables them to shift towards safer large-cap names during volatile periods or tap into mid- and small-cap opportunities when conditions turn favourable.This expert adds that the appeal of this category has been further reinforced by stretched valuations in certain segments of the market and overall investor sentiment staying cautious due to global uncertainties and mixed economic signals.'A slowdown in flows to large-cap funds and increased participation from retail investors appear to be contributing to the rise in inflows to flexi cap strategies. These funds also offer greater scope for alpha generation through active management, which has resonated well with investors amid heightened volatility,' Nehal Meshram, Senior Analyst – Manager Research, Morningstar Investment Research India, shared with ETMutualFunds.Flexi cap funds received an inflow of Rs 5,615 crore, Rs 5,541 crore, and Rs 3,841 crore in March, April, and May, respectively.There are 39 funds in the flexi cap category. According to the inflow data of the last three months, Parag Parikh Flexi Cap Fund , the largest fund in the category based on assets managed, received the highest inflow of Rs 15,863 crore, followed by HDFC Flexi Cap Fund , which received an inflow of Rs 11,660 crore. Quant Flexi Cap Fund received an inflow of Rs 964 crore in the last three months. Shriram Flexi Cap Fund received the lowest inflow of Rs 11.72 crore in a similar time frame.With the category having the second-largest AUM of Rs 4.71 lakh crore across all equity-oriented mutual fund categories, Shenoy considers this as retail investors viewing flexi cap funds as a smart choice for diversified equity exposure and active portfolio management.Now, the important thing is to know how these funds have performed in volatile markets compared to large caps and midcaps. While addressing this, Nehal mentions that during the correction seen between October 2024 and March 2025, flexi cap funds saw a decline of around 31.76%, which was lower than that of mid-cap funds (35.91%) and small-cap funds (39.76%), and only modestly higher than large-cap funds (28.36%) and this relatively lower decline in large-cap funds can be attributed to their exposure to more stable, liquid, and fundamentally stronger companies that typically hold up better during market downturns.She further adds that with market volatility still elevated and sentiment influenced by global macro developments and domestic valuation concerns, we believe flexi cap funds, particularly those managed by experienced fund managers with strong research frameworks, are well-placed to navigate the current environment.Shenoy also shared data which showed that the majority of flexi cap funds have a tendency to invest in large cap stocks, and it is indeed a good time to invest in flexi cap funds however, they should not be the sole equity component in the portfolio, as relying entirely on one category can limit diversification.The data from AMFI further showed that smallcap funds stood second in the inflow chart as the category received an inflow of Rs 11,306 crore in the last three months, followed by midcap funds, which received an inflow of Rs 9,561 crore. Largecap funds received an inflow of Rs 6,401 crore. Dividend yield funds were the last one to receive positive inflows, as the category received an inflow of Rs 171 crore, whereas ELSS funds saw an outflow of Rs 314 crore in the same period.The expert from Morningstar Investment Research India is of the opinion that historically flexi cap funds have exhibited a balanced performance profile during periods of heightened volatility or economic stress, and the flexibility to invest has often resulted in more stable outcomes compared to pure mid- or small-cap strategies, which are generally more vulnerable to sharp drawdowns.'The recent market correction has once again highlighted the advantages of an unconstrained approach, with many flexi cap funds outperforming peers restricted by rigid market-cap mandates. Looking ahead, the category is well-positioned to maintain its relevance amid ongoing macroeconomic uncertainty and the need for active portfolio management,' Nehal said.On the other hand, Shenoy shared the yearly returns by flexi cap funds and its equity peers which showed that on the basis of performance in different time periods, where the market underwent volatility, the flexi cap is one of the most consistent performers from the diversified categories and therefore it is good to have flexi cap in your portfolio up to 5 to 10%, this can help you take exposure across different market caps conveniently.Source: Anand Rathi WealthFlexi Cap Funds are equity-oriented mutual funds that invest across large-cap, mid-cap, and small-cap stocks. These funds are designed to give the fund manager complete flexibility in allocating investments across market capitalisations , based on prevailing market conditions.According to the SEBI mandate, flexi cap funds must invest a minimum of 65% of their assets in equity. The remaining allocation can vary, allowing the manager to shift between large, mid, and small-cap segments as opportunities arise. These funds are ideal for investors who have a long-term investment horizon (at least five years) and are comfortable with moderate to high risk. The dynamic nature of these funds allows them to adapt to changing market trends, making them suitable for growth-oriented investors.