Multi-cap funds have demonstrated superior performance across multiple timeframes compared to flexi-cap funds, according to Value Research data as of 25 June 2026. Multi-cap funds delivered 3.58% returns over 1 year, 17.07% over 3 years, and 14.66% over 5 years, significantly outperforming flexi-cap funds which returned 1.28%, 13.98%, and 11.99% respectively across the same periods. As reported by Mint, this performance divergence has revived a long-standing debate over whether mandated diversification across market capitalisations is superior to manager-driven flexibility. The recent outperformance reflects a market phase where mid- and small-cap stocks have outperformed large caps, benefiting multi-cap funds due to their structural mandate to participate in these segments.
According to Anupam Tiwari, Head of Equity at Groww Mutual Fund, the performance gap stems from fundamental structural differences between the two categories. Multi-cap funds must invest at least 25% each in large-, mid-, and small-cap stocks, ensuring consistent exposure to mid- and small-cap segments that have delivered stronger returns in recent years. In contrast, flexi-cap funds have no fixed allocation requirements, with SEBI mandating only a minimum 65% equity allocation across all market caps, allowing fund managers to shift allocations based on market conditions and valuations. Tiwari notes that allocation is just one factor, with stock selection, sector positioning, cash levels and portfolio construction also influencing returns. The mandatory allocation ensures that multi-cap funds remain aligned with their stated diversification objective regardless of market conditions.
The decision between multi-cap and flexi-cap funds should be based on portfolio role rather than recent performance, according to Tiwari's analysis. Multi-cap funds are designed as core equity holdings with mandatory exposure across market capitalisations ensuring 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, built for flexibility, enable fund managers to shift allocations based on market conditions, making them more suitable for investors preferring dynamic, actively managed approaches. As reported by Mint, combining both categories depends on portfolio construction needs and whether each fund adds distinct roles rather than increasing scheme numbers. For investors with minimum five-year horizons, flexi-cap funds offer the advantage of single fund exposure across large-, mid-, and small-cap segments without requiring separate fund allocations.
Performance across the multi-cap category varies considerably, with data from mutualfundindia.com showing annualised three-year returns ranging from 13.8% to 17.8% and five-year returns from 12.6% to 18.5% among schemes with sufficient track record. The leading funds have delivered annualised returns of 17-19% over three years, outperforming both the category average of 15.67% and the NIFTY 500 Multicap 50:25:25 TRI benchmark return of 15.19%. Among schemes with meaningful five-year track record, Mahindra Manulife Multi Cap Fund delivered first-quartile performance with an annualised return of 17.75% over three years and 15.01% over five years, outperforming the benchmark by approximately 2.56% annually over three years and 1.71% over five years. This outperformance is attributed to disciplined stock selection across each market-cap segment rather than aggressive portfolio concentration or outsized sector bets.
The recent outperformance of multi-cap funds reflects a market phase where mid- and small-cap stocks have outperformed large caps, benefiting multi-cap funds due to their structural mandate to participate in these segments. However, Tiwari cautions that the gap between categories may not remain stable as market leadership changes. For investors, 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, with the decision depending on whether they prefer rules-based allocation or flexible manager positioning. The flexibility advantage of flexi-cap funds becomes particularly valuable in 2026's market environment where large-cap valuations reflect strong earnings but limited upside surprise, mid-caps carry premium valuations after strong runs, and small caps offer growth potential with harder-to-assess earnings visibility. According to The Economic Times, India's equity markets are entering a phase of greater earnings visibility with falling commodity prices and easing supply chain issues expected to boost corporate earnings, with asset-heavy sectors like manufacturing, defence, and infrastructure expected to lead market growth over the next five to ten years.
