Flexi-cap funds are experiencing a surge in popularity among Indian investors, becoming the largest equity mutual fund category. These funds offer a unique blend of flexibility and diversification, appealing to those seeking long-term capital appreciation. According to ICRA Analytics, the Assets Under Management (AUM) of flexi-cap funds have increased by 148.28% over the last four years, reaching ₹5.52 lakh crore in December 2025, a significant rise from ₹2.22 lakh crore in December 2021. Net inflows have also seen a substantial increase, rising by nearly 315.97% to ₹10,019 crore in December 2025 compared to ₹2,409 crore in 2021.
What are Flexi-Cap Funds?
Flexi-cap funds are equity mutual funds that invest across large-cap, mid-cap, and small-cap stocks, without any restrictions on the allocation to each market capitalization. SEBI mandates that these funds must invest a minimum of 65% of their assets in equity and equity-related instruments. This flexibility allows fund managers to dynamically adjust their portfolios based on changing market conditions, capitalizing on opportunities across different market segments.
Why are They Gaining Popularity?
Several factors contribute to the rising popularity of flexi-cap funds:
- Flexibility: Fund managers have the freedom to allocate investments across different market caps, adjusting to market dynamics and economic trends. This adaptability enables them to optimize returns and manage risk effectively.
- Diversification: By investing in companies of all sizes and across various sectors, flexi-cap funds offer inherent diversification, reducing the risk associated with investing in a single market segment.
- Long-Term Wealth Creation: These funds are suitable for investors with a long-term investment horizon, aiming to create wealth by tapping into the growth potential of mid and small-cap stocks while maintaining the stability of large-cap companies.
- Resilience in Volatile Markets: Flexi-cap funds tend to offer better downside protection compared to pure mid or small-cap funds, making them attractive during market downturns.
- Professional Fund Management: Seasoned professionals actively manage the portfolio, ensuring consistent alignment with market conditions and investor goals.
Top 5 Flexi-Cap Schemes
While past performance is not indicative of future results, several flexi-cap funds have demonstrated strong returns and consistent performance. As of December 31, 2025, some of the top-performing flexi-cap funds include:
- HDFC Flexi Cap Fund: This fund has a substantial fund size and has generated annualised returns of over 20% over the past five years.
- Bank of India Flexi Cap Fund: Another top performer, this fund has also delivered annualised returns exceeding 20% over the last five years.
- Parag Parikh Flexi Cap Fund: Known for its consistent performance, this fund has witnessed impressive AUM growth and has been a favorite among investors.
- Edelweiss Flexi Cap Fund: This fund has showcased strong annualized returns over the past three and five years.
- JM Flexicap Fund: This fund has also delivered competitive returns, making it a noteworthy option for investors.
Other notable flexi-cap funds include Aditya Birla Sun Life Flexi Cap Fund, Kotak Flexicap Fund, and Quant Flexi Cap Fund.
Risks and Considerations
Despite their advantages, flexi-cap funds are not without risks:
- Market Volatility: As equity funds, they are subject to market fluctuations, which can impact returns, especially in the short term.
- Fund Manager Dependency: The fund's performance relies heavily on the fund manager's expertise in making asset allocation decisions.
- Exposure to Mid and Small-Cap Stocks: While offering growth potential, mid and small-cap stocks can be more volatile and less liquid than large-cap stocks.
- Allocation Risk: There is no guarantee that the allocation will be balanced, and many funds tend to have a higher share of large-cap stocks, reducing the intended exposure to mid- and small-cap segments.
Tax Implications
Flexi-cap funds are taxed as equity mutual funds. Short-term capital gains (STCG) are taxed at 15% if the units are sold within one year, while long-term capital gains (LTCG) exceeding ₹1 lakh in a financial year are taxed at 10% without indexation.
Conclusion
Flexi-cap funds offer a compelling investment avenue for those seeking a diversified and flexible approach to equity investing. Their ability to adapt to changing market conditions, coupled with the potential for long-term wealth creation, makes them a popular choice among investors. However, it's essential to understand the associated risks and choose a fund that aligns with individual financial goals and risk appetite.
