Mid-cap and small-cap mutual fund schemes have seen robust investor interest, drawing in approximately Rs 30,350 crore in inflows during the April to September period of the current financial year, according to data from the Association of Mutual Funds in India (AMFI).
For comparison, the total inflow into these funds was Rs 32,924 crore during the same period last year.
This trend of inflows continues despite warnings from market regulator SEBI regarding the surge in investments into small-cap and mid-cap funds, which have been fueled by impressive returns.
Experts suggest that investors are likely to keep favoring these categories for their high return potential. “Small caps will continue to grow at a rapid pace for years. I expect the inflows to persist as Indian investors seek opportunities in high-growth sectors. Small-cap funds should be considered a fundamental part of one’s portfolio rather than a tactical choice,” said Sandeep Bagla, CEO of Trust Mutual Fund.
In the first half of FY25, mid-cap funds attracted Rs 14,756 crore, while small-cap funds brought in Rs 15,586 crore, totaling Rs 30,342 crore in inflows, as per AMFI data.
This fiscal year, mid-cap and small-cap indices have recorded gains of about 20% and 24%, respectively, outpacing both the Nifty and large-cap indices. Although last year saw even higher returns that drove inflows, the current performance continues to attract investor interest.
Tradejini COO Trivesh said that strong investor demand for mid-cap and small-cap mutual funds stems from their potential for high returns.
Additionally, a stress test conducted in March 2024 has bolstered confidence in fund managers’ ability to navigate market volatility, according to Feroze Azeez, Deputy CEO of Anand Rathi Wealth Ltd.
“With mid-cap and small-cap segments projected to grow at 20% and 25% in FY25, respectively, we anticipate strong inflows, particularly as SIP contributions continue to reach new highs,” he added.
However, Manish Kothari, Co-Founder and CEO of ZFunds, cautioned that if there is a correction in the broader markets, inflows into mid- and small-cap mutual fund schemes may decline.
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 last year.
As inflows increased, the number of investor accounts (folios) in mid-cap and small-cap schemes surged by 1.32 crore year-on-year, reaching nearly 4 crore by September 30, 2024.
Overall, the assets under management for mid-cap and small-cap schemes rose by 63% to Rs 7.26 lakh crore at the end of September 2024, up from Rs 4.44 lakh crore a year earlier.
(With inputs from PTI)