Are Flexi Cap Funds Dead? A Look at How Flexible They Really Are

Flexi-cap funds are built around a simple idea: give fund managers the freedom to move money between large-, mid- and small-cap stocks as market opportunities change. 

In practice, that freedom is not always used as aggressively as the category’s name might suggest. 

An ET Money analysis found that while flexi-cap funds as a group have gradually reduced their dependence on large caps, some of the biggest schemes continue to keep a substantial portion of their portfolios in large companies. 

More surprisingly, being more flexible has not necessarily translated into better performance. 

Over the three-year period examined, funds that maintained higher large-cap exposure delivered slightly better risk-adjusted results than some of their more aggressively positioned peers. Funds that changed their large-cap allocations most frequently also lagged the Nifty 500 TRI on average. 

The findings raise an interesting question about the category: how much does flexibility actually matter if using more of it does not automatically improve returns? 

Flexi-cap funds are slowly moving away from large caps 

At the category level, portfolio allocations have changed noticeably over the past five years. 

Average large-cap exposure among flexi-cap funds declined from around 67% in 2022 to about 56% in 2026. 

Small-cap allocation moved in the opposite direction, doubling from approximately 10% to 20%. 

Mid-cap exposure increased more modestly, from around 17% to 19%. 

The shift suggests that the category as a whole has gradually increased its exposure outside large-cap stocks. 

But that trend becomes less visible when the largest funds are examined separately. 

The biggest flexi-cap funds remain heavily tilted towards large caps 

ET Money identified Parag Parikh, HDFC, Kotak, Aditya Birla and UTI as the five largest flexi-cap funds by assets under management as of June 2026. 

Parag Parikh Flexi Cap Fund was the largest, with assets of ₹1,43,388 crore, followed by HDFC Flexi Cap Fund at ₹1,06,496 crore. 

Kotak Flexicap Fund managed ₹55,850 crore, while Aditya Birla SL Flexi Cap Fund and UTI Flexi Cap Fund had assets of ₹26,727 crore and ₹22,882 crore, respectively. 

Despite the broader category moving away from large caps, these large schemes continued to maintain average large-cap exposure of roughly 65% to 69%. 

Their small-cap allocation increased only modestly, from around 7% to 9%, while mid-cap exposure ranged between approximately 13% and 18%. 

The two schemes managing more than ₹1 lakh crore illustrate the pattern particularly clearly. 

Parag Parikh Flexi Cap’s large-cap allocation increased over the five-year period to around 65%. Its exposure to both mid and small caps remained in single digits, although the fund also maintained a sizeable allocation to cash and overseas equities. 

HDFC Flexi Cap, meanwhile, continued to hold more than 70% in large caps. Its allocation had declined from a peak of roughly 82%, but remained high relative to the broader category. 

Large-cap-heavy funds narrowly beat the Nifty 500 

ET Money divided flexi-cap funds into groups based on their average large-cap exposure over the preceding three years. 

The first group consisted of funds that maintained at least 65% in large caps. 

Thirteen of the 35 flexi-cap funds with a history of three years or more fell into this category. 

HDFC had one of the highest average large-cap allocations at 76%, followed by Canara Robeco at 74% and Franklin at 72%. 

More than half of these mutual funds failed to outperform the Nifty 500 TRI on three-year returns individually. 

Yet as a group, the numbers were marginally ahead. 

The large-cap-heavy flexi-cap funds produced an average three-year return of 12.89%, compared with 12.53% for the Nifty 500 TRI. 

Their average Sortino ratio, which ET Money used to compare returns relative to downside volatility, stood at 0.41 against 0.40 for the index. 

HDFC was the strongest performer in this group, followed by ICICI Prudential and Aditya Birla. HDFC also led the group on risk-adjusted performance. 

The advantage over the benchmark was small, but the data did not show large-cap-heavy flexi-cap funds being penalised simply because they used less of their theoretical flexibility. 

Moderate large-cap exposure did not improve the numbers 

The second group consisted of funds that maintained between 50% and 65% in large caps. 

This was the largest segment, accounting for 17 of the 35 funds studied. 

Nine of the 17 funds beat the Nifty 500 on three-year returns. Invesco led the group, followed by Quant and 360 One, while Parag Parikh ranked seventh. 

The picture weakened when risk-adjusted performance was considered. 

Only seven funds beat the Nifty 500 on this measure, although Parag Parikh led the group, followed by Quant and WhiteOak Capital. 

Collectively, these funds produced an average three-year return of 12.65%, only marginally above the Nifty 500 TRI’s 12.53%. 

Their average Sortino ratio stood at 0.39, slightly below the index’s 0.40. 

Greater exposure outside large caps therefore did not produce a clear performance advantage over the more large-cap-heavy group during the period examined. 

The most aggressive group generated higher returns — but also weaker risk-adjusted performance 

Only five funds maintained average large-cap exposure below 50% during the three-year period: ITI, Bank of India, Motilal Oswal, LIC and Samco. 

Three of these five funds beat the Nifty 500 on three-year returns, while two lagged. 

Collectively, the group delivered the highest average return among the three allocation segments at 13.28%. 

That compared with 12.89% for the large-cap-heavy group, 12.65% for the moderate group and 12.53% for the Nifty 500 TRI. 

But the advantage disappeared when downside risk was included. 

The low-large-cap group recorded an average Sortino ratio of 0.36, below the Nifty 500’s 0.40 and also below both other flexi-cap groups. 

Bank of India, ITI and Motilal Oswal individually beat the index on risk-adjusted performance, while LIC and Samco lagged. 

The results show why returns alone do not tell the entire story. Greater exposure to mid- and small-cap stocks generated the highest average return in this comparison, but investors experienced a weaker return relative to downside volatility. 

How flexible are the most active flexi-cap funds? 

ET Money also examined flexibility differently. 

Instead of looking only at how much money a fund held in large caps, it measured how sharply that allocation changed over time using the coefficient of variation. 

A higher coefficient indicated more significant changes in a fund’s large-cap allocation. 

Samco, Shriram and Quant emerged among the most active funds on this measure. 

Samco provides an extreme example. 

Its large-cap allocation stood at 50% in June 2023 before falling to just 6% by March 2025. 

The allocation then moved back towards 40% between January and March 2026, before falling again to 23% by June 2026. 

That is the type of portfolio movement the flexi-cap structure theoretically allows. 

But it did not translate into stronger performance across the most active group. 

More portfolio movement did not mean better returns 

Among the nine funds in the most-active quartile, only four beat the Nifty 500 over the three-year period. 

On risk-adjusted performance, Quant, Motilal Oswal, Invesco and JM outperformed the index, while the remaining five lagged. 

Collectively, the group produced an average three-year return of 11.98%, below the Nifty 500 TRI’s 12.53%. 

Its average Sortino ratio was also lower at 0.34 compared with 0.40 for the index. 

In other words, the funds making some of the largest shifts in their large-cap allocations did not collectively benefit from that additional activity during the period studied. 

The least-active funds produced a different result 

At the other end were funds whose large-cap allocations changed relatively little. 

This group included several of the category’s large schemes, including Parag Parikh, HDFC, Kotak and UTI. 

Canara Robeco was the least variable of the group, maintaining its large-cap exposure within a relatively narrow 71% to 77% range over three years. 

Five of the nine least-active funds beat the Nifty 500 on three-year returns. 

HDFC, WhiteOak and Parag Parikh were among the stronger performers, generating annualised returns between 14% and 17%. 

As a group, however, the least-active funds returned 12.48%, slightly below the Nifty 500 TRI’s 12.53%. 

Their advantage appeared in risk-adjusted performance. 

The group’s average Sortino ratio stood at 0.43, compared with 0.40 for the index. 

That was also considerably higher than the 0.34 recorded by the most-active flexi-cap funds. 

Flexibility alone has not been enough 

The comparison challenges a straightforward assumption about flexi-cap funds. 

A fund with the freedom to move aggressively between market-cap segments does not necessarily benefit simply because it exercises that freedom more often. 

The most-active funds in ET Money’s analysis lagged the Nifty 500 on both average three-year returns and risk-adjusted performance. 

Meanwhile, large-cap-heavy funds slightly exceeded the index on both measures. 

Funds with less than 50% average large-cap exposure delivered the strongest absolute return at 13.28%, but recorded the weakest Sortino ratio among the three allocation groups at 0.36. 

The results also help explain why some of the category’s largest funds have remained heavily invested in large-cap companies despite having considerably more freedom. 

Flexi-cap funds are changing, but not uniformly 

Flexi-cap funds have not stopped using their ability to move across market-cap segments. 

At the category level, large-cap exposure fell from approximately 67% in 2022 to 56% in 2026, while small-cap exposure doubled to around 20%. 

But the biggest funds remain considerably more conservative in their allocations. 

More importantly, the three-year performance data does not show a straightforward relationship between greater flexibility and better outcomes. 

Large-cap-heavy funds averaged 12.89%, moderate large-cap funds returned 12.65%, and the low-large-cap group delivered 13.28%. The Nifty 500 TRI returned 12.53%. 

When downside risk was considered, the picture shifted. Their respective Sortino ratios were 0.41, 0.39 and 0.36, compared with 0.40 for the Nifty 500. 

The activity comparison was even more striking: the most-active funds averaged an 11.98% return with a 0.34 Sortino ratio, while the least-active group returned 12.48% with a higher 0.43 ratio. 

The numbers therefore do not suggest that flexi-cap funds are “dead”. They show something more nuanced: the flexibility available to fund managers and the flexibility they actually use can be very different — and making more tactical allocation changes has not automatically produced better results. 

For investors comparing flexi-cap funds, the label alone tells relatively little. Actual market-cap allocation, how frequently that allocation changes, long-term performance and downside risk provide a clearer picture of how a particular fund is being managed. 

Returns in the ET Money analysis are as of July 16, 2026, for regular plans and growth options. Sortino ratios are based on monthly return data between July 16, 2023 and July 16, 2026. 

Investments in securities market are subject to market risks, read all the related documents carefully before investing.