The inflow trend persists despite concerns raised by market regulator Sebi over heightened inflows into small-cap and mid-cap funds
Mid-cap and small-cap mutual fund schemes have continued to attract strong investor interest, garnering nearly Rs 30,350 crore in inflows during the April-September period of the current financial year, driven by impressive returns delivered by these segments.
In comparison, the cumulative inflow into mid-cap and small-cap funds stood at Rs 32,924 crore during the same period last year, according to data from the Association of Mutual Funds in India (Amfi).
The inflow trend persists despite concerns raised by market regulator Sebi over heightened inflows into small-cap and mid-cap funds, as experts believe investors will continue to favour 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 saw an inflow of Rs 14,756 crore and small-cap funds attracted Rs 15,586 crore in the first half of FY25. This aggregates the total inflow to Rs 30,342 crore, the data showed.
The strong investor interest in mid-cap and small-cap mutual funds is driven by the potential for high returns in these segments, Tradejini COO Trivesh said.
Mid-cap and small-cap indices have posted gains of about 20 per cent and 24 per cent, respectively, this financial year, outperforming both the Nifty and large-cap indices. While the previous year saw even higher returns that led to higher inflows, the current performance continues to draw investor interest.
In addition, stress test in March 2024 has also played a role, reinforcing confidence by ensuring that fund managers are prepared to handle market volatility, Feroze Azeez, deputy CEO, Anand Rathi Wealth Ltd, said.
"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 said.
Moreover, companies' earnings will drive flows in these categories.
The last year has seen mutual funds launch new fund offerings (NFOs) of thematic funds and newer fund management strategies in the passive fund management space. If these NFOs deliver above broader market returns, we may see incremental flows moving to those categories, Manish Kothari, co-founder and CEO, ZFunds, said.
If there is a correction in the broader markets, we may see flows in mid- and small-cap category mutual fund schemes go down, he added.
Large-cap mutual funds experienced an inflow of over Rs 7,067 crore in the April-September period of FY25 after witnessing an outflow of Rs 5,700 crore in the same period of FY24.
In line with the increase in inflow, the number of investors (folios) in the two schemes shot up by 1.32 crore year-on-year to nearly 4 crore in the six months period ended September 30, 2024.
"With the number of folios increasing, we see rising confidence in these funds' performance, despite the regulatory cautions," Tradejini's Trivesh said.
Overall, the assets of the two categories of the mid-cap and small-cap schemes rose 63 per cent to Rs 7.26 lakh crore at the end of September 2024 from Rs 4.44 lakh crore a year earlier.