5-year returns: Flexi cap funds may be smarter bet than large cap funds; here's why

When it comes to equity investing, the choice between flexi-cap funds and investing separately in large-, mid-, and small-cap funds depends on your investment style, risk tolerance, and market outlook. Large-cap funds primarily invest in the top 100 companies in India by market capitalization. These are industry leaders known for stable revenues, strong corporate governance, and relatively lower volatility—ideal for conservative investors seeking consistency and steady long-term growth.

Flexi-cap funds, on the other hand, offer fund managers complete freedom to invest across the market spectrum—large, mid, and small caps—without restriction. This flexibility allows dynamic shifts in allocation based on evolving market trends, sectoral outlooks, or valuation mismatches.

This adaptability gives flexi-cap funds an edge in bullish markets, while large-cap funds often hold up better during volatility due to their exposure to well-established businesses. However, no single fund category outperforms in every market cycle.

Over the past five years, the average compound annual growth rate (CAGR) of large-cap funds stood at 21.3%, while flexi-cap funds slightly outperformed with a 23.1% CAGR. Experts suggest that investors shouldn’t treat these categories as either-or, but rather as parts of a well-diversified portfolio.

“There will be no single category that can perform across market cycles, and every category tends to undergo cyclical performance. Investors are recommended to invest across active, diversified equity categories—market cap-based funds like large-, mid-, and small-cap, and strategy-based funds like value, contra, and focused. Both large-cap and flexi-cap funds have generated stable returns over the last five years. The choice shouldn’t be viewed in isolation,” said Arjun Guha Thakurta, Executive Director, Anand Rathi Wealth Limited.

“Both large-cap and flexi-cap funds have the potential to generate wealth for investors. Large-cap funds offer stability and resilience. Flexi-cap funds invest across the entire market cap spectrum and capitalize on opportunities across market cycles, especially during bullish phases,” said Vaibhav Shah, Head – Products, Business Strategy & International Business, Mirae Asset Investment Managers (India).

Advantages of Flexi-cap Funds

Built-in diversification: Automatically balances exposure across market caps, reducing overreliance on any single segment.

Market-responsive: Fund managers can quickly pivot in volatile conditions—moving to large caps for safety or mid/small caps for growth.

Lower maintenance: No need for investors to rebalance; the manager does it internally.

Ideal for long-term investors: Suited for those seeking growth without managing allocation actively.

Why consider separate funds?

Investing separately in large-, mid-, and small-cap funds offers more control. You can:

Increase large-cap exposure for stability during uncertain times.

Tilt toward mid- and small-caps during bull runs to capture higher returns.

Exit underperforming segments for tax-efficient rebalancing.

However, this approach requires active monitoring and timely rebalancing.

So, which fund should you choose?

Opt for flexi-cap funds if you prefer simplicity, diversification, and professional allocation management.

Choose separate cap-based funds if you’re a hands-on investor who wants tailored control aligned with your market outlook.

Ultimately, both options serve different purposes—and many seasoned investors use a blend of both for optimal diversification and performance.

Top 10 large-cap funds