Flexi cap mutual funds, one of the most popular equity fund categories for retail investors, saw inflows nearly halve to Rs 5,175 crore in May. According to the latest AMFI data, net inflows into the category declined 49% on a month-on-month basis.The nearly 50% decline in inflows has raised questions about whether investors are becoming cautious after a prolonged market rally or simply booking profits.Also Read | Sectoral and thematic fund inflows plunge 67% to Rs 647 crore. Are investors turning away from thematic bets? According to Protima Dhawan, Director & Unit Head, Anand Rathi Wealth Limited, who shared insights with ETMutualFunds, the moderation in inflows should be viewed in the context of the broader equity mutual fund industry."Flexi cap funds saw net inflows fall by around 50% in May, but this was part of a broader trend across all equity categories. Net inflows into active equity funds declined by 40% month-on-month, with all equity categories witnessing lower inflows. Even after the moderation, flexi cap funds remained the category attracting the largest inflows, garnering more than Rs 5,000 crore during the month," she said.Dhawan attributed the slowdown to a combination of factors, including rising geopolitical tensions, particularly concerns around the US-Iran conflict and potential disruptions to global oil supplies. At the same time, some amount of profit booking was expected after the strong recovery in equity markets in recent months.Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance, told ETMutualFunds that the decline should not be viewed in isolation.She noted that monthly inflow trends often reflect shifts in sentiment rather than any structural change in investor preference for the category. According to her, the moderation may indicate that the euphoria seen in April has cooled, rather than suggesting a loss of faith in flexi cap funds.In May, flexi cap funds received net inflows of Rs 5,175 crore, down 49% from the record-high inflows of Rs 10,147 crore recorded in April. On a yearly basis, the inflows increased by 35% from Rs 3,841 crore in May 2025.Should existing investors be worried or continue SIPs?Despite the decline in inflows, both experts believe existing investors should stay focused on their long-term plans rather than reacting to monthly flow data.Tandale echoed a similar view and said investors should not read too much into monthly inflow fluctuations.She noted that fund performance is ultimately driven by how effectively managers deploy capital rather than by how much fresh money enters the category in a given month. According to her, many flexi cap fund managers were already holding elevated cash levels, providing them with opportunities to selectively deploy capital when attractive opportunities arise.For SIP investors, she highlighted that category-level inflows have little bearing on their investment journey. SIP contributions across the mutual fund industry touched a record Rs 26,688 crore in May, while the number of contributing accounts rose to an all-time high of 8.56 crore, indicating that retail participation remains robust.Also Read |Quant Small Cap Fund raises stake in Adani Enterprises and 8 others, trims in Aurobindo Pharma and 4 more Dhawan pointed out that flexi cap funds remained the most preferred active equity category throughout FY26, accounting for nearly 26% of total active equity inflows and leading inflow charts in 11 out of 12 months. She added that the category's ability to dynamically allocate across market capitalisations and its strong long-term performance continue to make it attractive for investors."Investors should continue their investments as planned and not base decisions on short-term data. Long-term wealth creation is driven by consistency through market cycles rather than reacting to short-term fluctuations," she said.Do lower inflows create a better entry opportunity for new investors?Though inflows into flexi cap funds declined on a monthly basis, the AMFI note showed that within the category, flexi cap funds saw the largest inflows for the 10th consecutive month at Rs 5,176 crore, followed by small-cap funds (Rs 4,946 crore) and mid-cap funds (Rs 4,385 crore). Together, these categories accounted for around 63% of the total inflows.The decline in inflows may appear to create an attractive entry point, but experts caution against using fund flow data as an investment signal.Dhawan said investors should view any market correction as a potential opportunity, but lower inflows alone do not automatically make a fund more attractive. Investment decisions should be based on long-term goals, strategy and asset allocation rather than monthly flow numbers.Tandale believes the more important takeaway is that market enthusiasm has cooled from the peak levels seen earlier, which often coincides with more reasonable valuations.She said flexi cap funds remain one of the most suitable vehicles for first-time equity investors because the responsibility of allocating between large-, mid- and small-cap stocks rests with the fund manager. Investors therefore gain exposure to different market segments without having to make allocation decisions themselves.According to her, the combination of a post-rally consolidation phase, elevated cash levels with fund managers and the absence of excessive new fund offer-driven enthusiasm makes the current environment a relatively measured entry point for investors looking to start SIPs.Are flexi cap funds better positioned than large-cap or multi-cap funds today?As of May 2026, the flexi cap category had 63.75% in large caps, 14.16% in mid caps, 11.62% in others and 10.46% in small caps. Unlike large-cap funds, which must keep at least 80% of assets in the top 100 companies, or multi-cap funds, which are required to maintain minimum allocations across market-cap buckets, flexi cap funds have complete freedom to adjust allocations based on market conditions.Also Read | HDFC Defence Fund adds Tata Motors, reduces exposure in MTAR Technologies and 1 other in May The flexi cap category delivered an average return of 0.55% in May, with Quant Flexi Cap Fund offering the highest return of around 5.67%. Parag Parikh Flexi Cap Fund, the largest fund in the category, declined 1.39% in May, while Sundaram Flexi Cap Fund fell the most at around 2.11%.The debate around flexi cap versus large-cap and multi-cap funds has become more relevant as valuations in parts of the market remain elevated.Tandale believes flexi cap funds enjoy a structural advantage in the current market environment because managers can shift allocations depending on valuations and opportunities.She noted that while mid- and small-cap valuations remain stretched compared with historical averages, large-cap valuations offer relatively better comfort. Flexi cap funds can therefore increase exposure to large caps when necessary and move back to mid- and small caps as opportunities emerge.Dhawan said flexi cap funds currently hold around 61% of their portfolios in large-cap stocks, 20% in mid caps and 19% in small caps, providing a balanced mix of stability and growth. In contrast, multi-cap funds are required to maintain minimum allocations across market-cap segments, reducing flexibility.Allocation to have in flexi cap funds?Experts suggest that flexi cap funds can form the core of an investor's equity portfolio. Dhawan advises investors not to rely on a single category and instead maintain diversified exposure across equity segments. She recommends that no single category should dominate an investor's portfolio and that allocations should be aligned with individual goals and risk tolerance.According to Tandale, a growth-oriented investor can use flexi cap funds as the primary equity allocation, while complementing them with selective exposure to mid-cap, small-cap or large-cap index funds depending on risk appetite. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. 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