MUMBAI, Nov. 26 -- Investors are quietly reshaping how they take equity exposure through mutual funds. After chasing small- and mid-cap schemes for a while now, they are now pulling back from narrowly defined market-cap bets and funnelling money into funds that offer room to manoeuvre. Flexi-cap schemes, long seen as a middle-ground category, have emerged as the market's preferred gateway for equity allocations.

This shift comes as valuations remain elevated even as earnings momentum cools, prompting investors to seek safety without stepping out of equities. These schemes can move freely across large-, mid- and small-caps, without fixed allocation limits, allowing managers to shift exposure wherever valuations and opportunities look most...