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Reader’s query: I have invested in the Kotak Flexicap Fund, and it seems to be underperforming, yet continues to have a three-star rating. Should I withdraw from it and switch to another flexi-cap fund that is performing well? – Vidhya Iyer
The Kotak Flexicap Fund is no small player. It's the second-oldest fund in the flexi-cap space and, with an asset base of Rs 54,801 crore, the third-largest as well. Yet it's been going through a lean patch of late, leaving an investor puzzled: The fund carries a three-star rating from Value Research, but is that rating still deserved? Moreover, should they hold on, or move their money to a better-performing flexi-cap fund?
Let's address this properly.
First, a word on ratings
Value Research Ratings are not just about past returns. They combine returns and risk to capture a fund's risk-adjusted performance within its category. Each fund receives a Return Score and a Risk Score, and the Risk Score is subtracted from the Return Score to obtain a composite measure. This forms the basis of the star rating.
These scores are calculated over two time periods, which are then combined for a single view of the fund's standing: for equity and hybrid funds, the five-year score gets a 60 per cent weight, and the three-year score the remaining 40 per cent.
In the case of the Kotak Flexicap Fund, both its Return Grade and Risk Grade are rated 'Average', which justifies the three-star rating. Its three-year trailing returns of 13.7 per cent are marginally ahead of its benchmark, the BSE 500 TRI, but trail the category average over both the three- and five-year periods.
Why has the fund lagged?
Two things stand out. One is the fund's large allocation to Financials. This sector has outperformed the broader market (Sensex), but the BSE Bankex itself hasn't been a stellar performer, returning around 10 per cent and 12 per cent over five and 10 years, respectively. A heavy tilt towards a sector that itself isn't setting the market alight naturally weighs on returns.
The other is the fund's low portfolio turnover of just 11.2 per cent. This points to a buy-and-hold style, or buying stocks with the aim of staying invested for the long term. While not a red flag by itself, it does mean the fund won't quickly rotate out of underperforming pockets.
A large-cap tilt
Like most of its peers, the Kotak Flexicap Fund is large-cap heavy, with roughly 67 per cent of the portfolio in large caps and about 29 per cent in mid caps. This is fairly typical for the category, where a 'flexi-cap fund' often ends up looking a lot like 'large-cap-plus' in practice.
What about risk?
On risk metrics, the Kotak Flexicap Fund is largely in step with both the category and the BSE 500 TRI. Simply put, it hasn't meaningfully outdone its peers or the index on a risk-adjusted basis.
Its alpha, which is a measure of the additional returns a fund generates relative to its benchmark, stands at 1.88 per cent, while that of the flexi-cap category is 1.74 per cent. What’s more, the fund’s Sharpe ratio, which measures excess returns per unit of risk, is 0.58 per cent, compared with the benchmark’s 0.47 per cent and the category's 0.56 per cent, respectively.
What does stand out is the fund’s standard deviation (a measure of volatility), which is lower than both the category and the benchmark. That suggests a fund that falls less during downturns: lower volatility, even if it isn't chasing outsized gains either.
So, should you sell or stay?
Nothing here suggests the Kotak Flexicap Fund is a poor performer. The returns aren't spectacular, but they're not worrying either. Over 10-year rolling return periods, the fund has delivered 16.3 per cent, compared with the benchmark's 12.9 per cent. And on a trailing returns basis, it has earned 14.2 per cent over the same period, staying ahead of both the category and the BSE 500 TRI's 13.9 per cent.
Put simply, this is a fund doing steady, unspectacular work, not one falling behind. If you already hold it, there's no immediate case for panic.
However, if you're still on the fence about whether it fits your portfolio, or whether a switch to another flexi-cap fund makes sense for you, it may help to get a more personalised view. Value Research Fund Advisor offers exactly that: actionable insights on your portfolio, including which funds to hold or sell, backed by our analysts' recommendations.
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This article was originally published on July 10, 2026.
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