1 week ago
Mid- and Small-Cap Funds Capture Half of New Folios
Many investors are putting more money into mutual funds that buy shares of medium-sized and smaller companies.
These funds received more than half of all new investor accounts during the first four months of FY27.
They also received about 56% of all equity-fund inflows in July 2026.
These companies’ stock-market indexes rose much more than large-company indexes during that period.
Recent strong performance encouraged some investors to follow the trend.
Experts also said these funds provide access to industries that are less represented in large-company indexes.
Investors outside India’s biggest cities appeared more willing to take the higher risks of these funds.
However, strong recent returns may not continue.
Future results will depend on the companies’ earnings, business quality and valuations.
Large-cap funds are still receiving steady systematic investment plan money despite their recent weaker performance.
Mid- and small-cap mutual fund schemes accounted for more than 50% of new folios in the first four months of FY27, the highest share recorded since data became public.
Their share rose sharply from 2.91% of folio additions in FY21, when small-cap schemes recorded a net decline.
The two categories represented about 56% of total equity-fund inflows in July 2026, the first time since 2023 they exceeded half of monthly equity inflows.
The BSE MidCap and SmallCap indices gained about 20% and 30%, respectively, during the first four months of FY27, compared with roughly 8.5-9% for the Sensex and Nifty.
Experts linked the surge to recent performance, earnings momentum and sector exposure, while warning that future flows and returns will depend on business quality, earnings growth and valuations.
- Who
- Investors, mutual fund schemes and market experts including DP Singh, Trideep Bhattacharya and Vaibhav Porwal.
- What
- Mid- and small-cap mutual funds accounted for more than half of new mutual fund folios and attracted a majority of equity-fund inflows.
- Where
- India’s mutual fund and equity markets, with higher mid- and small-cap allocations reported among investors outside tier-1 cities.
- When
- During the first four months of FY27; the article also cites July 2026 inflows.
- Why
- Recent mid- and small-cap performance, earnings momentum, business-sector exposure and investor momentum-chasing drove the increased interest.
Reasons for Continued Mid- and Small-Cap Interest
Risks and Reasons for Caution
Recent performance
Reasons for Continued Mid- and Small-Cap Interest
The BSE MidCap and SmallCap indices outperformed large-cap benchmarks, encouraging investors to participate in the rally.
Risks and Reasons for Caution
Flows driven by recent performance may reflect momentum-chasing and could slow as market conditions change.
Growth opportunities
Reasons for Continued Mid- and Small-Cap Interest
Experts cited robust earnings momentum, upgrades and exposure to sectors such as chemicals, real estate, textiles, media and manufacturing.
Risks and Reasons for Caution
Future returns will depend on the quality of underlying businesses, earnings growth and valuations rather than sector exposure alone.
Investor allocation
Reasons for Continued Mid- and Small-Cap Interest
Investors outside tier-1 cities are allocating more to these categories, seeking higher returns and broader growth exposure.
Risks and Reasons for Caution
Mid- and small-cap funds carry higher risk, while steady SIP flows into large-cap funds suggest some investors continue to value their exposure despite recent underperformance.
Key facts
- Share of new folios
- Mid- and small-cap schemes accounted for more than 50% of folios added in the first four months of FY27.
- Previous low
- The categories represented 2.91% of folio additions in FY21.
- July equity inflows
- Mid- and small-cap funds accounted for about 56% of total equity-fund inflows in July 2026.
- BSE MidCap gain
- The BSE MidCap index rose about 20% in the first four months of FY27.
- BSE SmallCap gain
- The BSE SmallCap index rose about 30% during the same period.
- Large-cap benchmark gains
- The Sensex and Nifty gained about 8.5-9% during the first four months of FY27.
- Investor behavior
- Experts said recent performance and momentum-chasing, particularly through fintech platforms, influenced investment decisions.
- Continuing SIP flows
- SIP money continued flowing into large-cap funds despite their recent underperformance.
Sources
Related news
Mutual funds hit record inflows as smallcaps draw biggest share
Large-Cap Mutual Funds See First Outflows in Nearly Three Years
Small-cap fund inflows jump 39%, debt funds rebound in July
Mid-cap Funds Overtake Large Caps as SIP Preferences Shift
Equity MF inflows fall 15%; small-cap funds hit record
Andhra Pradesh Pushes Rs 20 Lakh Crore Investment Pipeline
Uzbekistan Seeks Indian Steel to Cut Logistics Costs
Emcure Pharma Q1 Net Profit Up 36% to ₹292.49 Crore
Geopolitical Tensions Drive Market Volatility
