12 Flexi Cap Mutual Funds Show Lower 5-Year Returns Than Benchmarks, Here’s What Investors Should Know

Mutual funds remain a popular investment choice for those looking to grow wealth steadily. Among these, Flexi Cap Mutual Funds are often attractive due to their flexibility in investing across all market capitalizations—large, mid, and small-cap stocks. However, selecting the right scheme can be challenging. According to recent data from the Association of Mutual Funds in India (AMFI), 12 prominent Flexi Cap Mutual Funds have trailed their benchmark returns over the past five years. Notably, these include funds from major players such as SBI Mutual Fund, LIC Mutual Fund, and Tata Mutual Fund. Here’s a breakdown of these funds and what it means for investors.

12 Flexi Cap Funds Lagging Their Benchmarks

The data reveals that these 12 funds, despite delivering annual returns of over 15% during the last five years, have not kept pace with their benchmarks like the NIFTY 500 and BSE 500 Total Return Indexes, which averaged returns of around 20%. This gap raises important questions for investors—particularly around whether actively managed Flexi Cap Funds are the best choice compared to passive index-tracking funds.

Below are the Flexi Cap Mutual Funds that trailed their benchmark returns over five years:

1. Taurus Flexi Cap Fund

1. Benchmark: BSE 500 TRI
2. 5-Year Annual Return: 15.75%
3. Benchmark Return: 20.11%
4. Axis Flexi Cap Fund

2. Benchmark: NIFTY 500 TRI
3. 5-Year Annual Return: 17.08%
4. Benchmark Return: 20.03%
5. Shriram Flexi Cap Fund

3. Benchmark: NIFTY 500 TRI
4. 5-Year Annual Return: 17.25%
5. Benchmark Return: 20.03%

…and the list continues with other major funds such as SBI Flexi Cap Fund, UTI Flexi Cap Fund, Tata Flexi Cap Fund, and others. Although they have offered substantial returns, they still fall short of their benchmarks.

Active vs. Passive Funds: Why This Gap Matters for Investors

The performance gap between these Flexi Cap Funds and their benchmarks is adding fuel to the debate on active versus passive investment strategies. Active funds rely on fund managers to select stocks with the goal of outperforming the market, while passive funds mirror an index, typically at lower costs.

Given these recent figures, some investors may start to reconsider the higher costs and human discretion involved in active Flexi Cap Funds. If certain Flexi Cap Funds cannot match or outperform their benchmarks, passive index funds that offer consistent market returns may appear more attractive.

Reasons Behind Underperformance of Flexi Cap Funds

1. Market Volatility: Flexi Cap Funds aim to take advantage of opportunities across different segments of the market, from large to small-cap stocks. However, in volatile market conditions, active management may struggle to capture growth in specific segments consistently.
2. Stock Selection Risks: The ability of a fund manager to choose winning stocks is crucial. While some Flexi Cap Funds have delivered strong returns, the performance of actively managed funds can vary significantly depending on stock choices.
3. Expense Ratios: Active funds typically have higher expense ratios due to the cost of research, analysis, and active trading. Higher costs can impact net returns for investors over time, which may partially explain why these funds lagged behind their benchmarks.
4. Shifting Market Trends: Some Flexi Cap Funds may have missed key sectors or stocks that contributed significantly to index returns. For example, the growth of specific technology or consumer stocks that dominate indices like the NIFTY 500 could be one reason behind the underperformance of certain active funds.

Should Investors Consider Passive Flexi Cap Options?

For investors, one key takeaway here is that passively managed funds might offer a cost-effective alternative. Passive funds, which aim to replicate a benchmark index, can deliver consistent returns that align with market performance. Additionally, they come with lower expense ratios since they don’t require active stock-picking. This aspect can be particularly attractive in cases where actively managed funds do not consistently outperform their benchmarks.

Points for Investors to Keep in Mind

• Long-Term Goals Matter: Even though these funds have underperformed their benchmarks, their annual returns still exceed 15%, which remains competitive for long-term growth. Investors should consider their personal financial goals and risk tolerance when making decisions.
• Diversify Your Portfolio: Diversifying investments across different types of funds—both active and passive—can help mitigate risks. If a portion of your portfolio includes passive funds that track the index, you may achieve stable returns while balancing risks.
• Evaluate Fund Performance Regularly: Keep an eye on how your chosen mutual funds perform over time. Fund rankings, benchmarks, and market conditions change, so periodic reviews can help you stay aligned with your investment strategy.
• Seek Financial Advice: Consulting a financial advisor can be beneficial, especially for new investors or those unsure of the right fund types to meet their financial goals.

Key Takeaway

Though these Flexi Cap Funds have delivered impressive returns, they have lagged behind their benchmark indices. This serves as a reminder for investors to weigh the costs and benefits of active versus passive funds based on personal goals and risk tolerance. The evolving mutual fund landscape, shaped by both market dynamics and investor preferences, emphasizes the importance of careful fund selection and ongoing performance review.

Disclaimer: This article provides data-driven insights and does not constitute investment advice. Past performance does not guarantee future results. Always consult with a certified financial advisor before making investment decisions.