An analysis of Association of mutual funds in India (Amfi) data by ICRA Analytics showed that despite the volatility in the equity markets in the last two years, mid and small cap funds saw considerable growth in retail participation.
While the mutual fund folio count in mid cap funds increased from approximately 15.3 million in June 2024 to 25.5 million in June 2026, small cap fund folios rose from around 20.3 million to 28.7 million during the same period. Together, these categories now account for more than 32% of all open-ended equity fund folios.
The sustained investor preference was reflected in the long-term performance of these categories. As of June 30, 2026, mid-cap funds generated a 3-year CAGR of 18.76% and a 5-year CAGR of 16.33%, while small-cap funds delivered a CAGR of 17.68% and 17.06%, respectively. In comparison, large-cap funds generated 10.65% and 10.22%, respectively, over the same periods. According to ICRA, the relatively stronger long-term returns have reinforced investor confidence in mid-cap and small-cap funds as vehicles for long-term wealth creation.
The growing investor conviction was also reflected in assets under management (AUM). Mid cap fund AUM increased from Rs. 4.32 lakh crore in June 2025 to Rs. 5.06 lakh crore in June 2026, while small cap fund AUM rose from Rs. 3.55 lakh crore to Rs. 4.30 lakh crore during the same period. Although market appreciation contributed to this growth, sustained fresh investments remained a significant driver.
However, ICRA cautioned investors to continue to remain mindful of valuation risks adding that elevated valuations could lead to periods of correction, higher volatility and relatively lower future returns if corporate earnings fail to meet market expectations. Consequently, it believes that future returns in these categories are likely to depend increasingly on sustained earnings growth rather than further expansion in valuations.