Flexi-cap and multi-cap mutual funds may look similar at first glance since they invest in large-cap, mid-cap and small-cap stocks. But they have significantly different investment mandates, and that distinction seems to be influencing investor preferences.
The SEBI Handbook of Statistics for FY26 shows that flexi-cap schemes attracted Rs 89,213 crore in net inflows during FY26, while multi-cap schemes received Rs 33,217 crore. So flexi-cap funds gained almost 2.7 times more money than multi-cap funds during the financial year.
The very sharp difference is the fact that both are companies with different market-cap sizes, so investors can see companies in different sectors in the market.
What is the difference between flexi-cap and multi-cap funds?
The key difference lies in how fund managers are allowed to allocate money.
Flexi-cap funds have a huge amount of freedom to choose between large-cap, mid-cap and small-cap stocks based on market conditions, valuations and the investment outlook of the fund manager. There is no minimum allocation that the fund must keep in each of these three segments.
Multi-cap funds, however, are structured with a much more structured mandate. Fund managers are required to allocate at least 25% to large-cap, mid-cap and small-cap stocks.
So while both types of funds offer diversified exposure, flexi-cap funds offer more flexibility and multi-cap funds ensure that investors remain meaningfully exposed to all three market-cap segments.
Flexi-cap inflows have surged
The different investor interest is better seen when the historical inflow numbers are considered.
Multi-cap schemes received net inflows of Rs 28,156 crore in FY22. In FY23, the amount went down to Rs 11,420 crore and fell sharply to Rs 1,045 crore in FY24. In FY25, inflows rose to Rs 42,282 crore and then moderated to Rs 33,217 crore in FY26.
Flexi-cap funds, however, received Rs 35,877 crore in FY22 and Rs 16,961 crore in FY23. Inflows were Rs 7,704 crore in FY24 and jumped to Rs 49,580 crore in FY25. In FY26, net inflows hit Rs 89,213 crore.
The numbers indicate that investors prefer flexibility in flexi-cap funds.
The returns do not fully explain the preference
Indeed, the difference in inflows cannot simply be attributed to better returns from flexi-cap funds.
According to data from Geojit Financial Services, multi-cap funds delivered average one-year returns of 27.30% in FY22, 0.70% in FY23, 46.14% in FY24, 7.87% in FY25 and -2.76% in FY26.
Flexi-cap funds delivered 20.45% in FY22, -1.28% in FY23, 39.13% in FY24, 6.60% in FY25 and -3.52% in FY26.
Thus, multi-cap funds actually outperformed flexi-cap funds in several of these periods. In FY26 also, the average decline in flexi-cap funds was slightly higher than that of multi-cap funds.
This indicates that the recent inflow patterns are likely to be driven by more than short-term performance.
Why are investors choosing flexi-cap funds?
One of the major factors is asset-allocation flexibility.
Market conditions can change rapidly, and the relative attractiveness of large-, mid- and small-cap stocks can vary depending on valuations, economic growth, interest rates and corporate earnings. Flexi-cap fund managers can add or cut the exposure to different sectors without having to stick to particular allocations.
Sriram BKR, senior investment strategist at Geojit Financial Services, has highlighted the distinction from an investor’s perspective. Investors with a higher risk appetite and better return expectations might be interested in multi-cap funds as they must be invested in mid- and small-cap stocks.
At the same time, awareness of the difference between the two categories has increased since their distinct categorisation in 2021.
Siddharth Maurya, MD of Vibhvangal Anukulara, attributed the stronger flexi-cap inflows in FY26 to the greater flexibility available to fund managers in adjusting exposure across market-cap segments.
What should investors do?
The choice of flexi-cap and multi-cap funds is ultimately a matter of an investor’s risk tolerance, investment horizon and preference for portfolio flexibility.
Flexi-cap funds might be more suitable for investors who want the fund manager to have more freedom to shift allocations between large-, mid- and small-cap companies.
Multi-cap funds may be attractive to investors who want a minimum exposure to all three market-cap categories. Since these funds must keep at least 25% of their assets in each segment, investors are guaranteed to buy mid- and small-cap stocks even if their fund manager might choose larger companies.
But mandatory exposure can also cause them to become more volatile, especially when mid- and small-cap stocks are in the midst of sharp corrections.
Investors should not pick a mutual fund just based on the number of recent inflows. Large inflows indicate investor preference, but they do not predict future performance.
The decision should instead be made based on the investor’s financial goals, investment horizon, risk appetite and existing portfolio. Investors should also look at a scheme’s portfolio, investment approach, expense ratio, consistency of performance and the fund manager’s track record before investing.
As a result, the sharp difference in FY26 inflows indicates that flexi-cap funds have become popular because investors value the freedom given to fund managers. But multi-cap funds still provide something different for investors who want to diversify between large-, mid- and small-cap companies.
In short, flexi-cap funds offer flexibility, while multi-cap funds offer a more defined allocation framework. Neither category is universally better; the more appropriate option depends on the investor's individual objectives and ability to handle market volatility.
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