In September 2024, I wrote a piece, ‘Flexi Cap Funds v/s Multi Cap Funds: Which Is Better at a Market High?’. The valuations of the Indian equity market then were exceptionally high: the BSE SmallCap P/E and BSE MidCap P/E were at around 36x and 34x, respectively, while the BSE LargeCap Index was nearly 26x.
Considering this, I suggested investing in Flexi Cap Fund over Multi Cap Funds, as the former held a higher allocation to large-caps (around 60%-65% of the net assets of the scheme). This was tactically proposed not ruling out the downside risk if Indian equities were to correct and the chances of small-caps and mid-caps witnessing greater drawdown than the large-cap counterparts.
As a matter of fact, eventually, the bellwether BSE Sensex and the Mid-Cap Index peaked in September 2024, while the BSE Small-Cap Index continued to scale up until December 2024.
In CY2024 Mid Cap Funds and Small Cap Funds remained the favourite of investors (despite frothy valuations). But it was also satisfying to see some investors taking exposure to Multi Cap Funds and Flexi Cap Funds. The net cumulative inflows into Flexi Cap Funds in CY2024 were slightly higher than Multi Cap Funds (see Graph 1).
In the CY2025 now with market volatility intensified, attributed to a variety of global and domestic factors, plus Foreign Portfolio Investors (FPI) dumping Indian equities; nervousness has set into the market. The BSE Sensex is down -13.4%, the BSE Mid-Cap Index -19.4% and the BSE Small Cap -21.6% from their respective peaks. The bears are tightening their grip.
This has taken a toll on the performance of equity-oriented mutual funds. On average, the Multi Cap Funds Flexi Cap Fund, as sub-categories, are down nearly -16.0% each from the peak of the BSE Sensex.
That being said, the drawdown in the case of Flexi Cap Funds is lesser than Multi Cap Funds (as of March 6, 2025). The key reason for this is that Flexi Cap Funds have consistently held a large-cap biased equity portfolio sighting margin of safety therein and have been quite tactical and picky when approaching mid-cap and small-caps.
But such an approach has also led to a bit of underperformance of Flexi Cap Funds as a sub-category compared to the Multi Cap Funds.
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