As markets remain volatile and investors look for the right mix of growth and stability, experts explain which of these two categories are positioned better in uncertain markets.
Also Read | International funds top return charts, but overseas investment limits persist. Should you continue SIPs or explore alternatives?
Anupam Tiwari, Head of Equities at Groww Mutual Fund told ETMutualFunds that market volatility is often uneven across segments, with different market caps performing differently across cycles and multicap funds can therefore be well positioned in volatile environments as they offer disciplined allocation across large, mid, and small caps within a single portfolio.
Tiwari further said that this allows investors to benefit from the relative stability of large companies while also participating in the long-term growth potential of mid and small caps and since each segment has a distinct role to play in an equity portfolio, a diversified multicap approach can help reduce over-reliance on any single category during periods of uncertainty.
Another expert, Jasmeet Singh, Executive Director, Anand Rathi Wealth Limited shared with ETMutualFunds that flexicap funds are generally better positioned when it comes to downside protection during volatile markets which is due to the fact that historically, flexicap funds have maintained a 50 to 60% allocation to large cap stocks which is significant and tend to be relatively more resilient during periods of uncertainty. On the other hand, multicap funds are required to maintain a minimum allocation of 25% each to large, mid and small caps, which limits their flexibility to adjust allocations based on market conditions.
However, this does not mean investors should rely on one single category. The ideal approach is to have exposure across different equity categories while keeping track of the overall market cap allocation in the portfolio. Investors can maintain around 50 to 55% in large caps, 20 to 25% in mid caps and the balance in small caps can help investors navigate market volatility smoothly, Singh further said.
Flexicap vs multicap
Multicap funds are required to invest at least 25% each in large-, mid-, and small-cap stocks, ensuring balanced exposure across market segments. Flexicap funds, on the other hand, have complete flexibility to increase or reduce allocations depending on market opportunities and valuations.
With both the categories investing across market capitalisations, which category is more suitable for long-term investors in a volatile market? Singh said that this is not the right way to approach long term investing through mutual funds and rather than choosing between multicap and flexicap funds, investors should focus on designing a portfolio level strategy and achieving the desired market cap allocation through multiple diversified equity funds.
Both flexicap and multicap funds have a role to play and can complement each other within a portfolio. However, the focus should be on building a diversified allocation across different categories and maintaining an ideal mix of large, mid and small cap exposure rather than trying to identify a single category that may perform better, Singh further said.
To this, Tiwari said that multicap funds can serve as a strong long-term core allocation for investors as they provide disciplined exposure across market capitalizations within a single product and this allows investors to participate in India’s broader growth story through a combination of established businesses as well as emerging companies across sectors and market segments.
He further said that for first-time equity investors as well, multicap funds can offer a balanced approach by combining the relative stability of large caps with the long-term growth potential of mid and small caps and the diversified structure also helps reduce concentration towards any single segment of the market.
Also Read | Post Office MIS vs mutual funds: Which is better for income-seeking investors?
Small cap and mid cap valuations
According to a report by Tata Mutual Fund, headline valuation premium for Nifty Smallcap 100 vs Nifty 50 has surged to ~18% by the end of April 2026 from 12% by end of previous month. Nifty Smallcap 100 1-year forward P/E remained at 22.6, higher than the long-term average of 16.9x.
Amid high valuations within the small cap space vs large caps and global peers. Current valuation metrics suggest the relative attractiveness of large caps over mid and small caps as they offer better risk-reward.
Headline valuation premium for Nifty Midcap 100 vs Nifty 50 has climbed to 50% by the end of April 2026. Valuations presently are marginally expensive to their long-term average. The index valuations have corrected from the peak of mid 2024 and broad-based economic & investment cycle recovery implies sustained opportunities in mid and small caps in the long term.
Impact of small cap and mid cap valuations
Valuations in the broader market have been a key concern for investors, particularly after the strong rally seen in mid- and small-cap stocks over the past few years.
Tiwari said that broad-based valuation concerns across the market have moderated in recent months and today, nearly one-third of mid-cap stocks are trading below their five-year average valuations, while nearly half of the small-cap universe is below its respective five-year average.
He further said that as a result, even if valuation concerns may still persist in certain areas, the broader opportunity set within mid and small caps has become more conducive to active stock selection and in this environment, a diversified multicap approach combined with disciplined bottom-up investing can help identify businesses with relatively stronger fundamentals, earnings visibility, and more reasonable valuations.
Singh said that while current valuations do not appear excessively stretched and earnings expectations remain healthy, any sharp correction in mid- and small-cap segments would likely affect multicap funds more than flexicap funds and this is because multicap funds are required to maintain minimum exposure to these segments, whereas flexicap fund managers can reduce allocations if market conditions warrant such a move.
More suitable for SIP investors
Performance of multi caps: In the last one year, Groww Multicap Fund delivered the highest return of around 10.78% whereas Samco Multi Cap Fund lost the most of around 11.50%. In the last three years and five years, multi cap funds offered upto 20.18% and 19.42% returns respectively.
Performance of flexi caps: In the last one year, Quant Flexi Cap Fund delivered the highest return of around 9.96% whereas Samco Flexi Cap Fund lost the most of around 8.20%. In the last three years and five years, flexi cap funds offered upto 20.63% and 17.09% returns respectively.
Systematic Investment Plans (SIPs) are often recommended to invest in categories that help them to diversify their portfolio during volatile periods as they help investors average purchase costs over time. So are flexi cap funds or multi cap funds more suitable for SIP investors?
While answering to this, Singh said that there is no single category that is inherently better for SIP investing during volatile markets. Instead, investors should stay committed to a well-defined investment strategy and maintain diversification across categories such as flexicap, multicap, large and mid cap, and small cap funds. Diversification across fund houses can also help manage risks more effectively over the long run.
Also Read |Best mutual fund SIP portfolios to invest in June 2026
Which one to hold for diversification?
A common question among investors is whether owning both categories leads to unnecessary overlap as they both invest across all market caps for diversification with just a difference in the fixed mandate that multi cap funds have.
Singh said that both multicap and flexicap funds can coexist in a portfolio as they serve different purposes. While multicap funds provide mandatory exposure across all market-cap segments, flexicap funds allow fund managers to dynamically adjust allocations based on valuations and opportunities. He adds that investors should not limit themselves to these two categories alone and should instead focus on maintaining an appropriate overall allocation across market caps.
(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 on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and Twitter handle.
as a Reliable and Trusted News Source