Multicap funds beat flexicaps on returns, but investors still favour flexicaps. Should you switch?
Multicap and flexicap mutual funds show a clear divergence between returns and investor preference. On a category-average basis, multicap funds have outperformed flexicap funds across shorter- and longer-term horizons. Yet, investors continue to put more money into flexi-cap schemes.
So, while recent returns have favoured multicap funds, investor preference remains tilted towards flexicap funds. What explains this gap?
Shivam Pathak, CFP and Founder of Asset Elixir, told ETMutualFunds that multi-cap funds have benefited from their mandatory exposure to mid- and small-cap stocks, which has supported recent returns. Investors, however, continue to favour flexi-cap funds for their greater flexibility and relatively smoother risk profile, particularly during uncertain markets.
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An analysis by ETMutualFunds showed that multi-cap funds fell 1.63% in the last three months, compared with a 2.61% decline in flexi-cap funds. Over six months, multi-caps gained 12.95%, while flexi-caps rose 9.31%.
Over one year, multicap funds delivered an average return of 2.96%, while flexicap funds declined 0.83%. The trend continued over longer periods. Multi-caps declined 1.25% over two years, compared with a 3.04% fall in flexicaps. Over three years, multicaps delivered 12.15%, against 10% for flexi-caps. Over five years, the respective returns were 11.69% and 9.23%.
According to AMFI data for August 2026, flexi-cap funds attracted Rs 5,059 crore, compared with Rs 3,733 crore flowing into multi-cap funds. Month-on-month, multi-cap inflows rose 16%, while flexi-cap inflows increased 7%.
Flexicaps vs multicaps
Multi-cap funds are required to invest at least 25% each in large-, mid- and small-cap stocks, ensuring exposure across market segments. Flexicap funds, on the other hand, can freely adjust their allocation based on market opportunities and valuations.
So, has this structural difference helped multi-cap funds outperform flexi-cap funds recently?
Minocha said the structural advantage is partly valid, as the mandatory allocation to large-, mid- and smallcaps ensures exposure to higher-growth segments. Mid- and small-caps can drive returns when these segments perform well, but can also weigh on performance when they lag.
Pathak also pointed to the mandatory allocation as a key reason for recent outperformance, saying it has allowed multi-cap funds to participate strongly in the rally in mid- and small-caps.
However, this advantage can become a risk during a prolonged correction in these segments, as fund managers cannot significantly reduce their exposure.
Also Read | AMFI reshuffle: NSE may get largecap status, SBI Fund Management may become midcap in H1 CY27
Which category is better positioned from here?
With multicap funds continuing to outperform flexi-cap funds, investors may wonder which category is better positioned and whether the current market environment favours one over the other.
Pathak said he would not consider either category universally better. Flexicap funds can work well as a core equity allocation, while multi-cap funds may suit investors with a higher risk appetite and longer investment horizon.
He added that the choice should depend on an investor’s overall asset allocation rather than recent category performance.
Minocha echoed this view, saying neither category is clearly superior. Multicap funds may suit investors seeking fixed allocations across market segments, while flexi-cap funds may appeal to those who value flexibility as market conditions evolve. Both can serve as core holdings depending on portfolio needs and risk tolerance, he said.
Time to shift from flexicap to multicap?
The stronger recent performance of multicap funds could tempt investors to move money from flexi-cap schemes. However, experts caution against making the switch solely on the basis of recent returns.
Minocha said he does not recommend switching funds simply because multi-cap funds have outperformed recently, calling it a form of return chasing. If an existing flexi-cap fund continues to align with an investor’s goals, there should be a strong reason to make a change, he said.
Looking ahead over the next three to five years, Minocha said he has a slight preference for flexi-cap funds as core holdings, as their flexibility could prove useful as market conditions change. Multi-cap funds may outperform when mid- and small-caps do well, but they are generally more volatile, he added.
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Pathak also advised against shifting solely on the basis of recent outperformance. For the next three to five years, he prefers maintaining a combination based on an investor’s risk profile, with flexi-cap funds offering flexibility and multi-cap funds providing higher exposure to mid- and small-cap stocks.
Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times
(If you have any mutual fund queries, message ET Mutual Funds on Facebook/Twitter. We will get them answered by our panel of experts. Do share your questions at ETMFqueries@timesinternet.in along with your age, risk profile and Twitter handle.)
So, while recent returns have favoured multicap funds, investor preference remains tilted towards flexicap funds. What explains this gap?
Shivam Pathak, CFP and Founder of Asset Elixir, told ETMutualFunds that multi-cap funds have benefited from their mandatory exposure to mid- and small-cap stocks, which has supported recent returns. Investors, however, continue to favour flexi-cap funds for their greater flexibility and relatively smoother risk profile, particularly during uncertain markets.
Also Read | MF Tracker: Nippon India Taiwan Equity Fund tops 1-year return chart with 118% gains. Can the strong performance continue?
An analysis by ETMutualFunds showed that multi-cap funds fell 1.63% in the last three months, compared with a 2.61% decline in flexi-cap funds. Over six months, multi-caps gained 12.95%, while flexi-caps rose 9.31%.
Over one year, multicap funds delivered an average return of 2.96%, while flexicap funds declined 0.83%. The trend continued over longer periods. Multi-caps declined 1.25% over two years, compared with a 3.04% fall in flexicaps. Over three years, multicaps delivered 12.15%, against 10% for flexi-caps. Over five years, the respective returns were 11.69% and 9.23%.
According to AMFI data for August 2026, flexi-cap funds attracted Rs 5,059 crore, compared with Rs 3,733 crore flowing into multi-cap funds. Month-on-month, multi-cap inflows rose 16%, while flexi-cap inflows increased 7%.
Flexicaps vs multicaps
Multi-cap funds are required to invest at least 25% each in large-, mid- and small-cap stocks, ensuring exposure across market segments. Flexicap funds, on the other hand, can freely adjust their allocation based on market opportunities and valuations.
So, has this structural difference helped multi-cap funds outperform flexi-cap funds recently?
Minocha said the structural advantage is partly valid, as the mandatory allocation to large-, mid- and smallcaps ensures exposure to higher-growth segments. Mid- and small-caps can drive returns when these segments perform well, but can also weigh on performance when they lag.
Pathak also pointed to the mandatory allocation as a key reason for recent outperformance, saying it has allowed multi-cap funds to participate strongly in the rally in mid- and small-caps.
However, this advantage can become a risk during a prolonged correction in these segments, as fund managers cannot significantly reduce their exposure.
Also Read | AMFI reshuffle: NSE may get largecap status, SBI Fund Management may become midcap in H1 CY27
Which category is better positioned from here?
With multicap funds continuing to outperform flexi-cap funds, investors may wonder which category is better positioned and whether the current market environment favours one over the other.
Pathak said he would not consider either category universally better. Flexicap funds can work well as a core equity allocation, while multi-cap funds may suit investors with a higher risk appetite and longer investment horizon.
He added that the choice should depend on an investor’s overall asset allocation rather than recent category performance.
Minocha echoed this view, saying neither category is clearly superior. Multicap funds may suit investors seeking fixed allocations across market segments, while flexi-cap funds may appeal to those who value flexibility as market conditions evolve. Both can serve as core holdings depending on portfolio needs and risk tolerance, he said.
Time to shift from flexicap to multicap?
The stronger recent performance of multicap funds could tempt investors to move money from flexi-cap schemes. However, experts caution against making the switch solely on the basis of recent returns.
Minocha said he does not recommend switching funds simply because multi-cap funds have outperformed recently, calling it a form of return chasing. If an existing flexi-cap fund continues to align with an investor’s goals, there should be a strong reason to make a change, he said.
Looking ahead over the next three to five years, Minocha said he has a slight preference for flexi-cap funds as core holdings, as their flexibility could prove useful as market conditions change. Multi-cap funds may outperform when mid- and small-caps do well, but they are generally more volatile, he added.
Also Read | 12 equity mutual funds turned Rs 10,000 SIP into Rs 10 crore since inception. Are they in your portfolio?
Pathak also advised against shifting solely on the basis of recent outperformance. For the next three to five years, he prefers maintaining a combination based on an investor’s risk profile, with flexi-cap funds offering flexibility and multi-cap funds providing higher exposure to mid- and small-cap stocks.
Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times
(If you have any mutual fund queries, message ET Mutual Funds on Facebook/Twitter. We will get them answered by our panel of experts. Do share your questions at ETMFqueries@timesinternet.in along with your age, risk profile and Twitter handle.)
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