Flexicap funds attracted over Rs 30,000 crore in the first six months of 2025 - a significant milestone reflecting changing investor preferences and growing understanding that rigid investment approaches may not be optimal in today’s dynamic markets.
In the first half of 2025, large-cap stocks delivered 6.98% returns, mid-caps managed 4.25%, and small-caps delivered just 0.83%. This divergence highlights the challenge investors face when locked into specific market-cap categories. Well-managed Flexicap funds capitalised on these rotations, with several top-performing schemes delivering returns exceeding 20% in recent months. These aren’t lucky breaks - they’re the result of managers who can move money where opportunities actually exist.
In September 2020, SEBI issued a circular revising allocation rules for multi-cap funds, mandating they allocate at least 75% of total assets to equity instruments with a minimum of 25% exposure to large-cap, mid-cap, and small-cap equities each. This regulatory shift fundamentally changed the mutual fund landscape. Before this mandate, funds labeled as “large-cap” could invest significantly in mid and small-cap stocks without restrictions. SEBI’s October 2017 categorisation guidelines aimed to ensure funds remained true to their names, bringing much-needed clarity but also constraints.
The creation of Flexicap funds as a separate category was SEBI’s solution to this rigidity. Flexicap funds must invest at least 65% of their assets in equity and equity- related instruments, but unlike multi-cap funds, they have no minimum allocation requirements across market capitalisations. In some periods, multi-cap funds have edged out flexicap funds, particularly when large-caps led the rally and flexicap managers chose to stay underweight in that segment. But this occasional underperformance is the price of flexibility, not a flaw. This regulatory paradox demonstrates that even flexibility can have drawbacks when market leadership concentrates in segments where fund allocation is constrained. Small and mid-cap stocks create real wealth when timing aligns. A small pharmaceutical company can multiply investments 10x with drug approval; a mid-cap tech firm can explode with major contracts. The challenge lies in timing these opportunities correctly.
Flexicap funds solve this puzzle professionally. When small-caps are cheap and unloved, managers can load up. When they become overheated, managers rotate into safer large-caps. I’s professional portfolio management bound by transparency requirements without rigid allocation constraints.
Markets today operate with increased complexity, where sector leadership and market-cap preferences shift more frequently than previous decades. Technology stocks may outperform one quarter while healthcare leads the next. Traditional fixed- allocation strategies often miss these rotational opportunities.
Currently, 39 Flexicap schemes manage Rs 4.35 lakh crore, making them the second-largest equity category after sectoral funds. However, sectoral funds are concentrated theme bets, while Flexicap funds offer diversified plays across entire market opportunity sets.
Investor interest, reflected in the Rs 31,532 crore inflow, signals recognition of one key truth: market leadership rotates faster than ever. From growth to value, domestic to export-led themes, Flexicap funds offer the ability to navigate these transitions without being boxed into a single style or sector.
For investors, the goal isn’t to time every move or bet on the right segment, i’s to stay invested in a strategy that adapts dynamically. Flexicap funds provide that adaptive edge, making them well-suited for long-term portfolios, especially when volatility and uncertainty are part of the equation.
When benchmark indices fell 10% from all-time highs recently, flexicap managers saw opportunities. Quality small and mid-cap stocks became available at discounted prices. While retail investors fled to fixed deposits, these managers selectively bought oversold segments.
For advisors and investors alike, Flexicap funds stand out by being able to lean in when others retreat.