Flexi-cap vs Multi-cap Funds: Comparing Performance Over 3, 5 and 10 Years

Flexi-cap and multi-cap funds are two of the most popular equity mutual fund categories for long-term investors. Both invest across large-cap, mid-cap and small-cap stocks with the aim of wealth creation. However, their investment strategy, risk profile and return behaviour differ.

Looking at category averages and individual fund performance helps investors understand how these two categories have performed over time.

Category Average Returns: How They Compare

Based on category averages, multi-cap funds have delivered higher returns across all major time periods.

Flexi-cap funds – category average:

• 3-year return: 16.99% CAGR
• 5-year return: 15.54% CAGR
• 10-year return: 13.87% CAGR

Multi-cap funds – category average:

• 3-year return: 19.20% CAGR
• 5-year return: 18.88% CAGR
• 10-year return: 15.12% CAGR

This indicates that multi-cap funds have benefited more from strong rallies in mid- and small-cap stocks over the years.

Returns Comparison: Flexi-cap vs Multi-cap Funds (Regular Plans)

Flexi-cap Funds

Multi-cap Funds

Source: Value Research

Why Multi-cap Funds Have Delivered Higher Returns

Multi-cap funds are required to maintain a fixed allocation to large-cap, mid-cap and small-cap stocks. This mandatory exposure to mid- and small-cap segments has worked well during favourable market conditions, helping these funds deliver higher average returns.

However, this structure can also increase volatility during weak or uneven market phases.

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Flexi-cap Funds: Stability Through Flexibility

Flexi-cap funds give fund managers full freedom to adjust allocations based on valuations and market outlook. Managers can increase exposure to safer large-cap stocks during volatile periods and shift to mid- and small-caps when opportunities arise.

This flexibility has helped flexi-cap funds deliver more consistent returns across different market cycles.

One-Year Performance: A Reminder of Volatility

The past one year has been challenging for equity markets, especially in the mid- and small-cap space. During this period:

• Flexi-cap funds delivered around 3% returns
• Multi-cap funds delivered around 1.28% returns

This highlights that short-term returns can fluctuate sharply, even in diversified equity funds.

Key Differences Between Flexi-cap and Multi-cap Funds

• Flexi-cap funds offer allocation flexibility, lower volatility and smoother returns.
• Multi-cap funds follow a fixed structure, leading to higher risk but better return potential in strong markets.

Who Should Invest Where?

• Investors seeking long-term consistency and lower volatility may prefer flexi-cap funds.
• Investors with a higher risk appetite, who can stay invested through market swings, may consider multi-cap funds.

A Word of Caution for Investors

Past returns help understand fund behaviour but do not guarantee future performance. Market conditions change, and strategies that worked well in one phase may underperform in another.

Instead of chasing recent returns, investors should focus on time horizon, risk tolerance and overall asset allocation.

Conclusion

Both flexi-cap and multi-cap funds have demonstrated strong wealth-creation potential over the long term. Multi-cap funds have delivered higher average returns over 3, 5 and 10 years, driven by stronger exposure to mid- and small-cap stocks. In contrast, flexi-cap funds have offered better consistency and stability across market cycles.

Choosing between the two should depend on an investor’s comfort with volatility and long-term investment goals, rather than short-term performance rankings.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Mutual Fund investments in the securities market are subject to market risks, read all the related documents carefully before investing.