The correction in Indian equities since September 2024 has unsettled many retail investors. Triggered by a mix of geopolitical tensions and trade-related uncertainties, the markets have seen a broad-based decline. In such volatile times, whether investing directly in stocks or through mutual funds, the emphasis on research, risk assessment, and diversification becomes even more crucial.
Equity mutual funds continue to attract investor interest, but there has been a noticeable shift in preferences. As small- and mid-cap segments saw sharper corrections, many investors have realigned their portfolios towards large-cap and flexi-cap funds. Among these, a common dilemma arises: Should you choose Flexi Cap Funds or Multi Cap Funds?
Both categories offer diversified exposure, but the structure and strategy differ significantly:
Flexi Cap Funds
Flexi Cap Funds invest across large-, mid-, and small-cap stocks without any mandatory allocation. Fund managers have the freedom to dynamically shift the portfolio based on market trends and economic outlook. For example, during periods of uncertainty, a manager might increase large-cap exposure to add stability and reduce risk. This agility is a key strength of Flexi Cap Funds — they can respond swiftly to changing market conditions, potentially smoothing returns and managing downside better.
Multi Cap Funds
Multi Cap Funds, on the other hand, are bound by SEBI’s mandate to allocate a minimum of 25% each to large-, mid-, and small-cap segments. This ensures balanced exposure and enforces diversification. However, it also limits the fund manager’s flexibility. Even if small-caps are underperforming, the fund must maintain its 25% allocation, which may affect performance during certain market cycles.
“Multi-cap funds have a structural constraint, with 75% of the portfolio locked equally across large-, mid-, and small-cap stocks, leaving limited room for tactical asset allocation. While this ensures diversification, it limits the fund manager’s ability to navigate market risks and opportunities. On the other hand, flexi-cap funds offer complete freedom to allocate across market caps in any proportion. This flexibility allows fund managers to dynamically shift portfolios based on market conditions, company performance, and macroeconomic trends,” said Yash Sedani, Assistant Vice President, Investment Strategy at 1 Finance.
He added: “Given that fund managers are more equipped to assess risks, interact with company managements, and respond to evolving market cycles, flexi-cap funds provide greater strategic autonomy and adaptability. However, since there are no allocation restrictions, investors should diversify across 1–2 flexi-cap funds to reduce dependency on a single fund manager’s strategy.”
Top multicap funds
The top-performing multicap funds as of May 2025 highlight consistent returns across timeframes. ICICI Prudential Multicap Fund – Direct Plan has maintained strong long-term performance with a 3-year return of 25.2% and a solid 1-year return of 10.34%. Nippon India Multi Cap Fund – Direct Plan stands out for its exceptional 3-year return of 28.95%, reflecting robust stock selection across market capitalisations. Axis Multicap Fund – Direct Plan posted a healthy 12.72% in the past year and 26.53% over three years, despite short-term volatility. SBI Multicap Fund – Direct Plan leads the 1-year chart with 15.34%, supported by its diversified portfolio strategy. Bandhan Multi Cap Fund – Direct Plan has also shown consistent growth, with a 3-year return of 23.28%. These funds demonstrate the strength of multicap strategies, balancing exposure to large, mid, and small caps—ideal for investors seeking long-term growth with diversified risk.
Top flexicap funds
The top 5 flexicap funds as of May 2025 have demonstrated consistent performance across short and long-term horizons. HDFC Focused 30 Fund and HDFC Flexi Cap Fund lead the pack with 5-year returns of 33.57% and 32.90% respectively, driven by strong equity picks across market caps. ICICI Prudential Focused Equity Fund and ICICI Prudential India Equity FOF also show robust long-term growth, supported by diversified exposure. Parag Parikh Flexi Cap Fund, known for its value-driven strategy and global allocation, delivered stable returns with 28.41% over five years. These funds offer a compelling mix of agility, consistency, and long-term wealth creation.
Top 5 Multicap Funds
ICICI Prudential Multicap Fund – Direct Plan
6M: 1.12% | 1Y: 10.34% | 3Y: 25.20%
Nippon India Multi Cap Fund – Direct Plan
6M: 0.63% | 1Y: 8.76% | 3Y: 28.95%
Axis Multicap Fund – Direct Plan
6M: -1.36% | 1Y: 12.72% | 3Y: 26.53%
SBI Multicap Fund – Direct Plan
6M: 1.81% | 1Y: 15.34% | 3Y: 19.98%
Bandhan Multi Cap Fund – Direct Plan
6M: 0.65% | 1Y: 9.21% | 3Y: 23.28%
Top 5 Flexicap Funds
HDFC Focused 30 Fund – Direct Plan
6M: 3.86% | 1Y: 15.31% | 3Y: 27.22% | 5Y: 33.57%
HDFC Flexi Cap Fund – Direct Plan
6M: 3.66% | 1Y: 14.41% | 3Y: 26.61% | 5Y: 32.90%
ICICI Prudential Focused Equity Fund – Direct Plan
6M: 4.71% | 1Y: 14.57% | 3Y: 26.13% | 5Y: 29.35%
Parag Parikh Flexi Cap Fund – Direct Plan
6M: 3.70% | 1Y: 14.19% | 3Y: 22.97% | 5Y: 28.41%
ICICI Prudential India Equity FOF – Direct Plan
6M: 2.37% | 1Y: 11.24% | 3Y: 24.27% | 5Y: 31.73%
Source: Value Research
