Freedom to adapt quickly: Unlike category specific funds that are mandated to stay largely within one market-cap segment, flexi-cap funds can allocate to large caps, mid caps, and small caps in any combination.

Lower volatility: By dialling down exposure to the more volatile mid- and small-cap segments during volatile phases, these funds generally exhibit consistent returns compared with pure mid- or small-cap funds.

Better downside protection: Historical data from recent market corrections show that well-managed flexi-cap funds have typically fallen less than their mid and small cap peers, providing investors with a meaningful cushion during drawdowns. “For those with long-term financial goals, flexi-cap funds strike an appealing balance. Investors particularly appreciate the built-in diversification and the fact that an experienced fund manager handles the complex task of shifting allocations across market cycles,” said Shukla.

As markets continue to swing between euphoria and caution, flexi-cap funds are increasingly being chosen for delivering growth opportunities without forcing investors to stomach the full roller-coaster ride of pure mid and small-cap investing. “Their popularity has surged post-COVID, with the category now managing over ₹5.3 lakh crore in AUM - the second largest within growth/equity-oriented schemes - across 43 AMCs. The category has delivered strong average returns of around 17% CAGR over 3 years and around 19% CAGR over the past 5 years,” said CFA Aditya Agrawal, Chief Investment Officer, Avisa Wealth Creators

Agrawal says from an investor’s perspective, the allocation depends on individual risk appetite, return expectations, and investment horizon. In a portfolio context, Flexi Cap funds serve well as a core holding, with the allocation levels tailored to the investor’s risk–return profile. “Overall, the Flexi Cap category has emerged as a suitable option for investors seeking a diversified portfolio that balances growth and stability - without the need to time market caps,” said Agrawal.

Flexi-cap funds

Are Flexi-cap funds a safer substitute for mid and small-cap exposure?