Small Cap vs Large vs Mid vs Flexi Cap Funds: Which is better at beating the benchmark?

Small cap funds have generated benchmark-beating returns more often than Large, Mid and Flexi cap funds. Over the last three years, around 75% of all small-cap funds have beaten their respective benchmark.

According to research on small cap investing by InCred Wealth, 83% of all small cap funds have outperformed their respective benchmarks in the last one year while only 21% of large cap funds have been able to do so. The number of mid cap and flexi cap funds outperforming the benchmark in one year was 54% and 34% respectively.

In the three-year period, only 22% of large-cap funds outperformed the benchmark, while for mid and flexi segments, this number was 39% and 28% respectively.

Also Read: Top 10 Small Cap mutual fund schemes with highest returns since launch

The average three-year return of small cap funds has also been higher at 30.31%. The average returns of large cap, flexi cap and mid cap funds in three years were 13.95%, 16.30 and 23.76% respectively.

As per the data quoted in the report, the top-performing small cap fund had an alpha of 15% in the last 1 year.

Equity market expectations – what should investors do?

The report said that the equity market would remain volatile. Nifty’s winning streak since mid-June 2022, which paused in September 2022, seems to have resumed in October 2022.

“In our view, investors need to look beyond the Index as Nifty offers limited near-term upside from here as the outcome will be a function of pushes and pulls of global and local macro, and improved margin of safety (P/E de-rating or stronger growth),” the report said.

“We suggest gradual utilization of cash in equity portfolios (over 6 months or so) by deploying in broader markets through actively managed mid and small-cap-oriented strategies,” it added.

Also Read: 10 Large Cap Mutual Fund schemes outperforming their Benchmark Index since inception

In these volatile times, investors should preserve their emotional energy and stick to an investment discipline/asset allocation.

Small cap funds witnessed an inflow of Rs 1581.91 crore in October, which was higher than mid cap and large cap funds.

(Mutual fund investments are subject to market risks. Please consult your financial advisor before making any investment decision)

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