Individuals should consider investing in flexi-cap funds as they are more resilient in volatile markets. The flexibility of fund managers to allocate money across market capitalisation helps them to generate alpha consistently in these funds.
The appeal of flexi-cap funds is growing. In the first half of this year, about Rs 31,500 crore has flowed into these funds.
Most of these funds have taken higher exposure to large-caps— on category level around 58.1%—with 19.8% in mid-caps, 16.1% in small-caps, and the rest in cash. This defensive stance helps them manage downside risk during uncertain times.
Amey Sathe, fund manager, Tata Mutual Fund, says flexi-cap funds provide the advantage of diversification, flexibility, and professional active management. “This allows investors to navigate volatile markets with an optimised balance of growth and risk mitigation,” he says.
Lower drawdowns
Flexi-cap funds have shown lower drawdown and volatility compared to many pure large-cap or mid-cap equity funds over the long run.
Aditya Agarwal, co-founder & CEO, Wealthy, a wealth-tech platform, says the flexibility enables fund managers to reduce exposure to underperforming or highly volatile segments and increase allocation to more stable or undervalued areas. “This strategy helps to control downside risk more effectively,” he says.
Helps generate alpha
Flexibility also allows managers to rotate between styles—focusing on growth stocks during expansion and switching to value or quality names in uncertain times. Unlike funds bound by rigid mandates, flexi-cap funds can stay aligned with changing market conditions.
“This adaptability not only reduces volatility but also creates opportunities to deliver superior risk-adjusted returns, giving managers a real edge in generating alpha over the long term,” says Nirav Karkera, head, Research, Fisdom.
Core portfolio
Flexi-cap funds work best as part of the core portfolio. An allocation of around 10–20% is generally suitable, depending on what other funds the individual holds. Since these are equity-oriented and meant to ride through market cycles, investors should ideally have a holding period of at least five years to benefit from their full potential.
“This gives the fund manager enough room to ride through cycles and unlock both the growth and compounding benefits these funds offer,” says Swapnil Aggarwal, director, VSRK Capital.