Mid-cap and small-cap mutual fund schemes have continued to attract robust investor interest, amassing nearly Rs 30,350 crore in inflows during the April-September period of the current financial year, bolstered by impressive returns in these segments.
In comparison, the cumulative inflow for mid-cap and small-cap funds during the same period last year was Rs 32,924 crore, according to data from the Association of Mutual Funds in India (AMFI).
This trend persists despite concerns raised by market regulator SEBI regarding increased inflows into small-cap and mid-cap funds. Experts believe that investors will remain drawn to these categories for their potential to deliver high returns.
“Small caps will continue to grow at a faster rate for years to come. I expect the inflows to continue as Indians want to invest in the high-growth sectors. Small cap funds should be seen as an integral part of one’s portfolio allocation, and not a tactical play,” Trust Mutual Fund CEO Sandeep Bagla told PTI.
Individually, mid-cap funds attracted Rs 14,756 crore, while small-cap funds brought in Rs 15,586 crore in the first half of FY25, for a total of Rs 30,342 crore.
The strong investor interest is fueled by the potential for high returns in these segments, as noted by Tradejini COO Trivesh. Mid-cap and small-cap indices have recorded gains of approximately 20 per cent and 24 per cent, respectively, this financial year, outperforming both the Nifty and large-cap indices. While last year’s returns were even higher, current performance continues to captivate investors.
Additionally, a stress test conducted in March 2024 has bolstered confidence by demonstrating that fund managers are prepared to navigate market volatility, according to Feroze Azeez, Deputy CEO of Anand Rathi Wealth Ltd. “With the mid-cap and small-cap segments projected to grow at 20 per cent and 25 per cent, respectively, in FY25, we expect inflows to remain strong, especially as SIP inflows continue to hit new peaks,” he added.
Company earnings will further drive flows in these categories. The past year has seen the launch of new fund offerings (NFOs) focused on thematic funds and innovative strategies within the passive fund management space. If these NFOs yield returns above broader market performance, additional flows may shift toward these categories, noted Manish Kothari, Co-Founder and CEO of ZFunds.
However, Kothari cautioned that a correction in broader markets could lead to decreased inflows in mid- and small-cap mutual fund schemes.
In contrast, large-cap mutual funds saw inflows of over Rs 7,067 crore during the April-September period of FY25, recovering from an outflow of Rs 5,700 crore in the same period of FY24.
Reflecting this increase in inflow, the number of investors (folios) in mid-cap and small-cap schemes surged by 1.32 crore year-on-year, reaching nearly 4 crore by September 30, 2024. “With the number of folios increasing, we see rising confidence in these funds’ performance despite the regulatory cautions,” Trivesh remarked.
Overall, the assets in mid-cap and small-cap schemes rose by 63 per cent, reaching Rs 7.26 lakh crore at the end of September 2024, up from Rs 4.44 lakh crore a year earlier.
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