Best Multi Cap/Flexi Cap Funds to Invest in 2021


It is a well established fact that no particular market cap can be an outperformer every year. Hence, diversification across market cap viz. large cap, mid cap, and small cap can help you to lower the impact of volatility on your portfolio and thereby earn better risk-adjusted returns. Multi Cap Fund is one such category of equity mutual fund that invests in equities of small, mid, and large-sized companies.

Graph 1: Performance across market caps differs every year

Data as of December 31, 2020
(Source: ACE MF)

Until last year, most multi cap funds held a large-cap biased portfolio with little or no allocation to smaller caps which meant that it could not take the best advantage of phases when smaller caps were in favour. Hence, SEBI issued a guideline asking multi cap funds to have a balanced exposure of at least 25% each in large cap, mid cap, and small cap stocks.

Further to ensure that fund managers have the flexibility to invest wherever value and opportunities are available without any restriction on market cap, it introduced a new category called Flexi Cap Funds under equity schemes that can invest dynamically across large cap, mid cap, and small cap stocks.

What are Multi Cap/Flexi Cap Funds?

As per the new SEBI guidelines, Multi cap funds are mandated to invest at least 75% of its total assets in equities, with at least 25% exposure each in large cap, mid cap and small cap stock. Whereas Flexi cap funds are required to invest minimum 65% of its assets in equity and equity related instruments with dynamic allocation across large cap, mid cap, and small cap stocks.

Notably, many multi cap funds that had large cap-biased portfolio have now recategorized itself as Flexi cap fund. Under the new category and name these funds will continue to follow their current investment strategy as it offers complete flexibility for the fund while investing across market cap segments. Hence, the recategorization will not have any significant impact on the way these funds are managed.

As an investor, you now have the option to select a multi cap fund that maintains a balanced allocation across market caps, or a flexi cap fund that invests dynamically across market caps, depending on your risk taking ability.

Graph 2: Placement of multi cap-oriented funds on risk-return spectrum

Note: For illustrative purpose only
(Source: PersonalFN Research)

Multicap funds and Flexi cap funds invest across market capitalisation which makes them riskier than pure large cap funds and large & midcap funds, but less risky than pure mid cap funds and small cap funds.

While smaller caps have high return potential, they are prone to high volatility. However, the presence of large caps in the portfolio offers some stability.

If you are an aggressive investor looking to gain from across market capitalisation over a long term, you may consider investing in multicap fund or a flexi cap fund.

Table: Performance scorecard of Multi Cap/Flexi Cap Mutual Funds

Scheme Name Absolute (%) CAGR (%)
1 Year 2 Years 3 Years 5 Years 7 Years
UTI Flexi Cap Fund 34.42 27.14 19.68 20.11 19.20
Parag Parikh Flexi Cap Fund 37.25 27.38 19.27 20.62 20.80
PGIM India Flexi Cap Fund 43.94 31.59 18.08 20.90 --
Quant Active Fund 51.94 30.41 17.62 20.54 22.84
Canara Rob Flexi Cap Fund 27.51 23.21 16.48 20.25 17.77
DSP Flexi Cap Fund 23.66 26.40 14.62 20.24 19.56
Kotak Flexicap Fund 21.02 19.68 13.13 19.17 20.27
ICICI Pru Multicap Fund 22.25 17.29 10.66 16.72 17.63
Baroda Multi Cap Fund 26.19 20.02 10.27 15.80 15.58
Invesco India Multicap Fund 24.19 21.32 9.94 17.21 20.75
NIFTY 500 - TRI 26.67 19.43 11.86 17.85 16.33
S&P BSE 500 - TRI 27.38 19.78 12.12 18.07 16.46
Data as on February 11, 2021
(Source: ACE MF)
*Please note, this table only represents the best performing Multi Cap and Flexi Cap Funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for an indicative purpose. Speak to your investment advisor for further assistance before investing.

A significant number of multi cap-oriented funds have not been able to outperform the benchmark index in the last few years. This makes it important to select multi/flexi cap funds that have a reliable track record of generating healthy returns across market phases and cycles.

Best Multi cap/Flexi cap mutual funds to invest in 2021:

Based on our analysis and research at PersonalFN, Canara Robeco Flexi Cap Fund, Parag Parikh Flexi Cap Fund, and UTI Flexi Cap Fund are currently the best schemes in the Multi Cap/Flexi Cap fund category. These funds stood strong in the recent corrective phase to reward investors with superior risk-adjusted returns. While UTI Flexi Cap Fund and Canara Robeco Flexi Cap Fund have achieved this with a growth-oriented strategy, Parag Parikh Flexi Cap Fund's focus on quality value stocks has helped it become a top performer.

Some other decent performers are -

Kotak Flexi Cap Fund

PGIM India Flexi Cap Fund

DSP Flexi Cap Fund

Union Flexi Cap Fund

Quant Active Fund

When you invest in a multi/flexi cap fund consider schemes based on its respective market cap allocation after assessing your own risk appetite to avoid taking undue risk.

Here are the other facets you need to look into to select the best Multi cap/Flexi cap funds:

Quantitative Parameters:

Analyse if the fund has shown consistency in performance across various market periods (bull and bear market phases) compared to the benchmark and category peers. While all funds may perform well during the bull phase, an important parameter while selecting a multi cap/flexi cap fund is to determine its ability to manage the downside risk during tough market conditions.

Then determine whether the fund has rewarded its investors well for the risk they have taken using risk-reward ratios like Sharpe Ratio, Sortino Ratio, and Standard Deviation over a 3-year period.

Give preference to those funds that stand strong on risk-reward parameters while short listing funds for your portfolio.

Qualitative Parameters

Qualitative parameters are often overlooked though they are a vital aspect in the selection process. It involves determining the quality of the portfolio and the efficiency of fund manager/house.

The fund house should have a significant performance record and must follow robust investment processes with adequate risk management systems in place.

And because the fund's performance is directly dependent on the ability of its fund manager, check the qualification and experience of the fund manager and the track record of the other schemes they manage.

Look at the fund's portfolio for how well diversified it is across stocks/sectors. Remember that a concentrated portfolio can expose you, the investor/s, to higher risk. Ensure that the scheme optimally diversifies its portfolio across large cap, mid cap, and small cap space to help it sail through adverse market conditions and reduce the impact of volatility.

Moreover, keep a tab on the churning rate of the securities in the portfolio because a high churning rate can make the portfolio prone to volatility and negatively impact the overall returns of the scheme. Analyse, the portfolio turnover ratio and expense ratio to assess how efficiently the fund controls the churning and limits the expenses.

Yes, we know that the above list is a lot for an average investor to look at. It involves number crunching and much of the data is not easily available in one place. But if you do need to narrow down on the top funds, these factors are of utmost importance.

Watch this short video on selecting mutual fund schemes:


At PersonalFN, we select and recommend mutual funds based on quantitative and qualitative parameters using our S.M.A.R.T Score Matrix:

  • S - Systems and Processes

  • M - Market Cycle Performance

  • A - Asset Management Style

  • R - Risk-Reward Ratios

  • T - Performance Track Record

The outlook for Multi cap/Flexi cap mutual funds in 2021:

The equity market across market cap is exhibiting optimism on the expectations of economic recovery coupled with low interest rate scenario. Here are some of the other factors that bode well for the equity market:

  • Decline in active and fresh COVID-19 cases

  • Vaccination drive to curb COVID spread has begun

  • Government's emphasis on on Atmanirbhar Bharat and Production linked incentive as India along with other countries looks to shift manufacturing base away from China

  • Boost to Health, Capex, and Infrastructure announced in the Union Budget 2021 could encourage economic activities and potentially generate employment opportunities

  • Expected rebound in consumption demand and corporate earnings

Overall, the equity market outlook seems bright, unless we witness any adverse events in the near future. But do note that the strong rebound since the March 2020 lows has made the valuations very expensive and therefore, the chances of an intermediate correction of around 5-10% from the current high levels cannot be ruled out.

Therefore, it would be imprudent to invest in multi/flexi cap funds with a short term view. Invest in schemes that align with your set investment objective and personalised asset allocation plan. Review your investment at regular intervals to ensure you're on the right track to accomplish your envisioned financial goals.

Lastly, when you invest in multi cap/flexi cap funds, prefer the SIP route to mitigate the impact of volatility and benefit from the power of compounding.

PS:  If you wish to select worthy mutual fund schemes, I recommend that you subscribe to PersonalFN's unbiased premium research service, FundSelect.

Additionally, as a bonus, you get access to PersonalFN's popular debt mutual fund service, DebtSelect.

PersonalFN recommendations go through our stringent process that assesses both quantitative and qualitative parameters, providing you with Buy, Hold, and Sell recommendations on equity and debt mutual fund schemes.

If you are serious about investing in a rewarding mutual fund scheme, Subscribe now!

Warm Regards,
Divya Grover
Research Analyst

Join Now: PersonalFN is now on Telegram. Join FREE Today to get ‘Daily Wealth Letter’ and Exclusive Updates on Mutual Funds