Flexi cap mutual funds are often touted for their versatility, allowing fund managers to invest across large-, mid-, and small-cap stocks. While this flexibility aims to capture opportunities across various market segments, recent data underscores that it does not insulate investors from significant market downturns.
A detailed analysis by Value Research on the best and worst one-year rolling returns of flexi cap funds reveals that investors must be prepared for substantial short-term volatility. Many prominent schemes have historically witnessed declines exceeding 30% during their weakest 12-month periods, even if they later staged impressive recoveries.
Understanding Flexi Cap Volatility
Despite their 'all-weather' reputation, flexi cap funds are fundamentally equity investments and thus exposed to broader market sentiment. The analysis highlights that even funds with strong long-term track records are susceptible to sharp corrections during periods of market stress.
For instance, the Covid-19 market crash in 2020 saw equity markets experience one of the fastest declines in history, followed by an equally swift recovery. Such events underscore the inherent downside risk in equity investing, a reality that flexi cap funds are not immune to.
Major Funds and Their Steepest Drops
The Value Research study identified several top flexi cap funds with notable worst-year performances:
- HDFC Flexi Cap Fund: Recorded the steepest average worst-year performance, falling 38.08%.
- Taurus Flexi Cap Fund: Declined 35.85% in its weakest 12-month period.
- Franklin India Flexi Cap Fund: Saw a worst-year return of -35.08%.
- Quant Flexi Cap Fund: Despite delivering a best-year return of 145.54%, it experienced a significant 34.22% loss in its worst one-year period.
Other well-known funds that posted losses exceeding 30% include HSBC Flexi Cap Fund (-32.15%), Aditya Birla Sun Life Flexi Cap Fund (-31.36%), Motilal Oswal Flexi Cap Fund (-30.96%), and Navi Flexi Cap Fund (-30.30%). Several established funds also saw sizable declines in the 20-30% range, such as Kotak Flexicap Fund (-29.91%) and SBI Flexicap Fund (-28.46%).
Newer Funds and Historical Context
Interestingly, some relatively newer flexi cap funds show much smaller downside numbers. For example, Helios Flexi Cap Fund posted a worst-year return of 0.30%, while WhiteOak Capital Flexi Cap Fund (-1.63%) and ICICI Prudential Flexicap Fund (-2.21%) recorded comparatively limited declines.
However, these figures require careful interpretation. Most of these newer funds possess shorter operating histories and have not yet been tested by a prolonged bear market comparable to the Covid crash or earlier significant market downturns. Their performance data does not encompass the same breadth of market cycles as older, more established funds.
Navigating Downside Risk in Investments
For investors, these findings reinforce a crucial lesson: downside risk is an integral component of equity investing. While flexi cap funds offer diversification through their ability to invest across market capitalizations, they remain exposed to overall market sentiment and economic cycles.
Financial advisors consistently recommend evaluating funds based on long-term performance across multiple market cycles, rather than focusing solely on recent returns or short-term fluctuations. Investors should align their investment decisions with their individual risk appetite, investment horizon, and overall asset allocation strategy. A long-term perspective generally better positions investors to ride out periods of market volatility.