How much can flexi cap funds fall? Historical data reveals worst-case scenarios for investors

Flexi cap mutual funds are often recommended as an all-weather equity investment because they can invest across large-, mid- and small-cap stocks. While this flexibility allows fund managers to capture opportunities across market segments, it does not shield investors from sharp market declines.

A latest analysis by Value Research of the best and worst one-year rolling returns of flexi cap funds shows that investors should be prepared for significant short-term volatility. In fact, several well-known schemes have witnessed declines of more than 30% during their weakest one-year periods, even though many later delivered stellar recoveries.

The worst

Among the schemes analysed, HDFC Flexi Cap Fund recorded the steepest average worst-year performance, falling 38.08% over its weakest 12-month period.

Close behind was Taurus Flexi Cap Fund, which declined 35.85%, followed by Franklin India Flexi Cap Fund with a worst-year return of -35.08%.

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One of the category's best-performing schemes during bull markets, Quant Flexi Cap Fund, also experienced a significant drawdown. Despite delivering the highest best-year return of 145.54%, the fund's worst one-year period saw it lose 34.22%, underscoring the inherent volatility of equity investing.

Other prominent funds that posted losses exceeding 30% during their weakest year include HSBC Flexi Cap Fund (-32.15%), Aditya Birla Sun Life Flexi Cap Fund (-31.36%), Motilal Oswal Flexi Cap Fund (-30.96%) and Navi Flexi Cap Fund (-30.30%).

Several established funds also witnessed sizeable declines in the range of 20-30%. Kotak Flexicap Fund fell 29.91%, Bandhan Flexi Cap Fund lost 29.76%, Edelweiss Flexi Cap Fund declined 29.58%, SBI Flexicap Fund dropped 28.46%, while PGIM India Flexi Cap Fund recorded a worst-year return of -27.74%.

Flexi Cap Fund	Worst 1-Year Return (%)
HDFC Flexi Cap Fund	-38.08
Taurus Flexi Cap Fund	-35.85
Franklin India Flexi Cap Fund	-35.08
Quant Flexi Cap Fund	-34.22
HSBC Flexi Cap Fund	-32.15
Aditya Birla Sun Life Flexi Cap Fund	-31.36
Motilal Oswal Flexi Cap Fund	-30.96
Navi Flexi Cap Fund	-30.30
Kotak Flexicap Fund	-29.91
Bandhan Flexi Cap Fund	-29.76
Edelweiss Flexi Cap Fund	-29.58
SBI Flexicap Fund	-28.46
PGIM India Flexi Cap Fund	-27.74
Helios Flexi Cap Fund	0.30
WhiteOak Capital Flexi Cap Fund	-1.63
ITI Flexi Cap Fund	-2.04
ICICI Prudential Flexicap Fund	-2.21
Bajaj Finserv Flexi Cap Fund	-2.23

Source: Value Research

Strong long-term track records

The data highlights that even funds with strong long-term track records are not immune to market corrections. Most of these worst-year performances occurred during periods of heightened market stress, particularly around the Covid-19 market crash in 2020, when equity markets witnessed one of the fastest declines in history before staging an equally sharp recovery.

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On the other hand, several relatively newer flexi cap funds show much smaller downside numbers. Helios Flexi Cap Fund posted a worst-year return of 0.30%, while WhiteOak Capital Flexi Cap Fund (-1.63%), ITI Flexi Cap Fund (-2.04%), ICICI Prudential Flexicap Fund (-2.21%) and Bajaj Finserv Flexi Cap Fund (-2.23%) recorded comparatively limited declines.

However, these figures should be interpreted carefully. Most of these funds have shorter operating histories and have not yet experienced a prolonged bear market comparable to the Covid crash or earlier market downturns.

For investors, the findings reinforce an important lesson: downside risk is an integral part of equity investing. Flexi cap funds offer diversification through the freedom to invest across market capitalisations, but they remain exposed to overall market sentiment.

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Financial advisers generally recommend evaluating funds based on long-term performance across multiple market cycles rather than focusing only on recent returns. Investors should also align their investments with their risk appetite, investment horizon and asset allocation strategy. Those with a long-term horizon are generally better positioned to ride out periods of volatility than investors attempting to time market movements based on short-term fluctuations.