India's first passive flexi-cap fund: exploring key features, trade-offs

The fund will track the Nifty 500 flexicap quality 30 index and use a rule-based mix of momentum and quality

- Jash Kriplani

Flexicap funds were originally launched to allow investors to diversify across market caps—large, mid, and small caps. But in practice, these funds have largely remained large-cap oriented, with fund managers making limited allocations to stocks in other segments.

Despite the fund manager's free mandate to move between market caps, flexicap tends to favor large-cap stocks.

Generally, the regular flexicap fund category's allocation to large-caps has been in the range of 62-78%, with less allocation to mid- and small-cap stocks. Parag Parikh Flexicap Fund's allocation to large-cap stocks stood at 62% as of 31 July 2025, while HDFC Flexicap's large-cap allocation stood at 84%, according to Value Research. The regular flexicap fund of DSP Mutual Fund—the fund house that has now launched the passive flexicap fund—had 58% allocation to large-caps as of 31 July 2025.

Here is the gap that a passively managed flexicap fund can look to fill. A passively managed fund follows a set of pre-defined rules rather than active stock-picking by a manager.

DSP MF's newly launched fund is the first passively managed rule-based fund in the 4.93 trillion flexicap category, which is dominated by actively managed funds. The Nifty 500 Flexicap Quality 30 Index Fund tracks an index that combines both momentum and quality filters.

The fund can tilt as much as 67% into mid- and small-caps when they are in "relative momentum" (performing better than large-caps). When the trend reverses, it will cut exposure to mid- and small-caps down to 33% and lean back into large-caps, per the fund house's product note.