Analysis of top flexi-cap mutual funds in India

In the dynamic and ever-evolving landscape of Indian mutual funds, flexi-cap funds have emerged as a popular investment choice among investors seeking a diversified portfolio with the flexibility to adapt to changing market conditions. These funds offer the freedom to invest across all market capitalizations, large-cap, mid-cap, and small-cap without being constrained by predefined proportions. This adaptability allows flexi-cap funds to navigate market cycles effectively and potentially capture growth opportunities across the spectrum of equity markets.

Here we are doing a detailed analysis of 3 Flexi-cap Funds: 

Fund Details 

Asset Allocation

Parag Parikh Flexicap 

This fund invests in overseas equities, which makes it unique among its peers. It typically invests around 65% of its assets in domestic equities. However, due to government restrictions on overseas investments, the fund is currently unable to invest any new money in overseas stocks.

The fund has a consistent track record of adhering to its overseas equity allocation strategy. In its early years, the fund had a large chunk of its portfolio invested in small-cap stocks. However, as small-cap stocks grew, the fund shifted its allocation towards mid- and large-cap stocks. After the COVID-19 pandemic, the fund reduced its exposure to large-cap stocks and increased its exposure to mid-cap stocks. In recent years, the fund has been gradually increasing its allocation to large-cap stocks once again.

Current allocation: Large cap – 58.85%, Mid cap – 6.83%, Small cap – 4.96%, Overseas Equity – 16.04%, Cash & Others: 16.04%

Kotak Flexicap 

This fund consistently allocates around 70 to 75% of its assets to large-cap stocks. Similarly, it allocates around 20 to 22% of its assets to mid-cap stocks, with a recent increase to 25%. Prior to the COVID-19 pandemic, the fund also invested in small-cap stocks, but these holdings are now negligible and the fund has a different strategy than others.

Current allocation: Large cap – 71.5%, Mid cap – 25.02-%, Small cap – 2.43%, Cash & Others: 0.9%

HDFC Flexicap 

This fund follows the same investment strategy as Kotak, with 75% of its assets allocated to large-cap stocks. However, this fund invests more in small-cap stocks compared to mid-cap stocks. The fund’s cash balance increased after the year 2022 as the fund manager was changed.

Current allocation: Large cap – 74.18%, Mid cap – 11.47%, Small cap – 7.30%, Cash & Others: 7.04%

Stock Holdings

• Parag Parikh Flexicap fund has recently increased its portfolio holdings from 30 to 40 stocks. However, its portfolio turnover ratio remains relatively low at 45%, indicating that the fund holds stocks for a significant period. Some of the fund’s long-term holdings include HDFC Bank, Facebook, Axis Bank, ICICI Bank, CDSL, and Balakrishna Industries.
• Kotak Flexicap Fund also adheres to a long-term investment philosophy, reflected in its low portfolio turnover ratio of 10%. The fund maintains a diversified portfolio of approximately 50 stocks.
• HDFC Flexicap Fund similarly adopts a long-term investment approach, with a portfolio turnover ratio of 28%. This suggests that the fund holds stocks for an extended period. Even after the fund manager changes the portfolio holding is not much altered. The change was only with the number of stocks holding which are 41 now from 51.

Fund Performance

Data recorded as of 31st October

In 2016, Parag Parikh Flexi Cap Fund demonstrated a relatively modest performance of 3.48%, while Kotak Flexicap Fund outperformed with 8.65%, and HDFC Flexi Cap Fund fell in between at 6.45%. However, in 2017, Parag Parikh Flexi Cap Fund significantly improved, recording a robust 29.42% return, surpassing Kotak Flexicap Fund’s 34.32% and HDFC Flexi Cap Fund’s 36.86%.

The following years showed varying performance trends, with Parag Parikh Flexi Cap Fund consistently exhibiting strong returns, even during market downturns, as seen in its impressive 45.3% in 2021.

Kotak Flexicap Fund and HDFC Flexi Cap Fund also displayed commendable performances in certain years. Considering the consistent performance over the years, Parag Parikh Flexi Cap Fund appears to be a standout choice for investors seeking a well-performing flexi-cap fund in this category.

Trailing Returns

Data recorded as of 31st October

In the past year, the Parag Parikh Flexi Cap Fund has displayed robust performance with a YTD return of 22.08%, outperforming both the category average (12.76%) and its peers such as Kotak Flexicap Fund (10.75%) and HDFC Flexi Cap Fund (15.95%). Over the last 3 and 5 years, Parag Parikh Flexi Cap Fund has consistently delivered competitive returns of 23.2% and 20.75%, respectively, demonstrating its long-term stability.

Read more: Exploring Multi-Asset Funds outperformance

Additionally, the fund has consistently outpaced its category average across multiple time horizons. Considering its strong performance across various periods, the Parag Parikh Flexi Cap Fund stands out as a promising choice for investors seeking a well-performing flexi cap fund.

Risk Ratio Analysis

Parag Parikh Flexicap: 

• The beta of this fund is 0.65, which is significantly lower than the category average. This is likely due to its allocation to US equities.
• The fund has consistently generated alpha, which is a measure of its excess performance over the benchmark index. Its alpha of 9 is far more impressive than the category average.

Kotak Flexicap: 

• The beta of this fund is higher than the category average, indicating that it takes on more risk than its peers.
• The fund generated good alpha until 2020, but its performance has been lagging behind the category average in recent years.

HDFC Flexi Cap: 

• The fund’s beta has consistently been above 1, which suggests that it is a riskier investment than Parag Parikh Flexi-cap.
• The fund’s alpha has only been higher than the category average after the PSU bank rally. Prior to that, it was lagging behind the category average.

Conclusion

• Parag Parikh Flexicap stands out as the top choice among the three flexi-cap funds due to its consistently high returns, unique overseas equity strategy, and lower risk profile. It is a well-performing and resilient fund that is suitable for investors seeking a long-term investment option.
• Kotak Flexicap has historically outperformed the market but has faced recent challenges. This fund focuses on large-cap stocks and may be suitable for investors with a higher risk tolerance.
• HDFC Flexicap maintains a solid long-term approach despite a change in fund manager. It is a good option for investors seeking a balanced approach to investing.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.