Decoding Flexi-Cap Underperformance: Structural Constraints and Sector Headwinds

Flexi-cap is the name given to an equity-oriented scheme for mutual funds whose structure is open-ended and whose portfolio includes large-cap, mid-cap, and small-cap shares as at least 65% of its investment is in equities.

As of September 25, 2026, within the last three years, there were about 3 flexi-cap funds with a single-digit gain, while another one had shown negative gain.

The SBI Flexi Cap, UTI Flexi Cap, and Shriram Flexi Cap were among the funds which showed positive single-digit gains for 3 years, while Samco Flexi Cap Mutual Fund had a negative gain.

The Bank of India Flexi Cap Fund, ITI Flexi Cap Fund, Motilal Oswal Flexi Cap Fund, Invesco India Flexi Cap Fund, and Bajaj Finserv Flexi Cap Fund have generated annualised returns of 16.5%, 15.7%, 15.7%, 15.1%, and 14.6%, respectively, over the last three years.

Here is the list of mutual funds that posted single-digit or negative returns:

1. SBI Flexi Cap

SBI Flexi Cap Fund was started on September 29, 2005, which marks 21 years since its inception. The total AUM managed by the SBI Flexi Cap Fund as on August 31, 2026, is ₹23,234.64 crore. The objective of the fund is to offer investors chances for capital appreciation along with the liquidity of an open-end fund scheme, by actively investing in a well-diversified portfolio of equity shares of all market capitalisations along with debt securities.

The fund has delivered a 3-year return of 8.64%, matching its benchmark, the BSE 500. However, the underperformance due to the restrictions ,requiring the fund to invest a majority of its assets in large-cap stocks,with a large-cap allocation of 57.23% compared to just 14.02% in small-caps,causing it to miss out on small-cap rallies and leading to lagging returns.

The table below contains the top 5 largest stock holdings as on August 31st, 2026.

Some of the major Stocks holding were:

2. UTI Flexi Cap

Launched on August 5, 2005, the UTI Flexi Cap Fund has completed 21 years since its inception. As of August 31, 2026, the fund manages a total AUM of ₹24,163.23 crore. The objective of the scheme is to generate long term capital appreciation by investing predominantly in equity and equity related securities of companies.

The fund has made returns of 7.36% for 3 years, which is less than the benchmark index, Nifty 500. It has been found that the fund lags due to constraints imposed by law, where it has to keep more of its investment in large caps and misses the small cap rally.

The fund has a large-cap allocation of 58.1%, while only 12.21% is allocated to small-caps.

The table below contains the top 5 largest stock holdings as on August 31st, 2026.

Among the schemes with sizeable holdings were:

3. Shriram Flexi Fund

Set up on September 28, 2018, the Shriram Flexi Cap Fund has been in existence for eight years now. Based on the data up to August 31, 2026, the total value of AUM of the fund is ₹130.73 crore. The objective of the fund basically is to provide long-term capital appreciation through investing in diversified equity portfolios.

Despite the positive 3-year returns of the fund, it has underperformed its benchmark Nifty 500 and produced negative alpha of 3.14.

There is a large-cap weighting of 64% and small-cap weighting of 24.81%. Around 32% of the portfolio of the fund is allocated towards the financial services industry; due to the correction in the financial sector, it can be seen as the one of the main factors responsible for underperformance of the fund.

The largest holdings included:

4. Samco Flexi Fund

Launched on February 4, 2022, the Samco Flexi Cap Fund has completed four years since its inception. As of August 31, 2026, the fund manages a total AUM of ₹261 crore. Its investment objective is to generate long-term capital growth through an actively managed portfolio comprising Indian and foreign equity instruments across all market capitalisations.

The fund has underperformed its benchmark, the Nifty 500, delivering a negative 3-year return alongside a deeply negative alpha of roughly -13.1. According to media reports,sector-specific headwinds and misjudged calls in cyclical or value traps have weighed heavily on the overall trailing averages for such a laggard scheme.

The largest holdings included:

Reasons for Underperformance

Overall, the flexi-cap funds generating low single digit or negative returns in three years have been facing several structural challenges, such as large proportions allocated towards large-caps, which prevented them from participating in the gains of small-caps, as well as sector-related correction pressures on sectors, which had higher weightages, such as finance. Even though existing schemes, like SBI and UTI, did equally well or underperformed relative to their respective benchmarks because of their large-cap concentration constraints, laggard funds, such as Shriram and Samco, had sectoral headwinds and incorrectly positioned themselves for the cyclicals.