Recent performance trends in equity mutual funds have revived a familiar comparison between multi-cap and flexi-cap categories. Multi-cap funds have delivered higher returns across 1, 3 and 5-year periods, according to Value Research data as on 25 June 2026.
The divergence is drawing attention because both categories invest across market capitalisations, yet follow very different allocation frameworks. One is bound by a fixed structure across large, mid, and small caps, while the other gives fund managers complete discretion. The outcome in the latest market cycle has therefore raised a sharper question on whether rules-based allocation is working better than flexible positioning.
Multi-cap funds ahead across timeframes
| Time period | Flexi-cap funds (%) | Multi-cap funds (%) |
|---|---|---|
| 1-year | 1.28 | 3.58 |
| 3-year | 13.98 | 17.07 |
| 5-year | 11.99 | 14.66 |
Data as on 25 June 2026. Source: Value Research.
Why multi-cap funds are outperforming
Anupam Tiwari, Head of Equity at Groww Mutual Fund, links the performance gap to mandated allocation across market caps.
He explains that multi-cap funds must invest at least 25% each in large-, mid-, and small-cap stocks. This ensures consistent exposure to mid- and small-cap segments, which have delivered stronger returns in recent years.
Flexi-cap funds, in contrast, have no such requirement. Many schemes have remained tilted towards large-cap stocks, which provide stability but have lagged during periods when broader markets led the rally.
He adds that allocation is only one part of the outcome. Stock selection, sector positioning, cash levels and portfolio construction also influence returns across both categories.
How investors should choose between the two
According to Tiwari, the decision should be based on the role a fund plays in the portfolio rather than recent performance.
He notes that multi-cap funds are designed to function as core equity holdings. The mandatory exposure across market capitalisations ensures diversification across cycles, allowing investors to participate in both large-cap stability and mid- and small-cap growth through a single fund.
Flexi-cap funds, on the other hand, are built for flexibility. Fund managers can shift allocations based on market conditions, valuations and outlook, making them more suited for investors who prefer a dynamic, actively managed approach.
Should investors hold both?
Tiwari suggests that combining both categories is not a default requirement and depends on portfolio construction needs.
He explains that investors should first assess whether their current flexi-cap allocation already provides broad market exposure. If the goal is to ensure consistent participation across market caps, a multi-cap fund may serve that purpose more directly due to its structural mandate.
He also highlights that investors should focus on whether each fund adds a distinct role to the portfolio rather than on increasing the number of schemes.
The takeaway
The recent outperformance of multi-cap funds reflects a market phase in which mid- and small-cap stocks have outperformed large caps. Since multi-cap funds are structurally required to participate in these segments, they have benefited more.
However, the gap between the two categories may not remain stable. As market leadership changes, performance can also shift.
For investors, the takeaway is simple. The choice between multi-cap and flexi-cap funds is less about chasing returns and more about the level of structure or flexibility they want in their equity portfolio.
