Archive · 25 Aug 2026
Why Small-Cap Funds Continue Holding ₹4.37 Lakh Crore
Small-cap funds invest in smaller companies and often keep those investments for a long time.
A study by India’s market regulator looked at about 242 IPOs launched between April 2022 and October 2025.
It found that mutual funds usually sold only a small part of their IPO shares after the required lock-in period ended.
Foreign portfolio investors sold more of their shares during the same periods.
Fund managers may keep a stock if they still believe the company can grow.
Selling would also mean finding another place to invest the money.
One analyst said funds have plenty of cash but may not see better choices.
Another said the main reason is strong long-term confidence in selected companies.
Smaller stocks have also performed better than the Nifty 50 over the recent eight-month period.
Domestic mutual funds sold an average of 3% of allotted IPO shares after 30 days, 7% after 60 days and 15% after 90 days.
Across 167 IPOs with a 365-day holding period, mutual funds sold 38% of their allocations, compared with 60% for foreign portfolio investors.
Funds often retain profitable holdings when managers remain confident in a company’s fundamentals and see no better alternative.
Analysts differ on the explanation: one cites excess cash and limited attractive opportunities, while another emphasizes long-term conviction.
The Nifty Smallcap 250 gained 10% over the past eight months, while the Nifty 50 declined 7%, supporting continued interest in smaller companies.
- Who
- Domestic mutual funds, foreign portfolio investors, market regulator Securities and Exchange Board of India, and fund-management analysts.
- What
- Mutual funds are retaining much of their allotted shares in mainboard IPOs after lock-in periods expire.
- When
- The Securities and Exchange Board of India study covered IPOs launched from April 2022 to October 2025; recent market comparisons cover the past eight months.
- Where
- The analysis concerns India’s mutual-fund and IPO markets.
- Why
- Managers may retain holdings because they remain confident in company fundamentals, while some analysts say funds also lack more attractive alternatives for their cash.
Cash and Alternatives
Long-Term Conviction
Why funds hold IPO shares
Cash and Alternatives
Analyst Ambareesh Baliga said funds may have excess cash and little reason to sell profitable positions when they do not see better investment opportunities.
Long-Term Conviction
NexAge Capital Chief Investment Officer Gaurav Kulshreshtha said the pattern should not necessarily be attributed to a shortage of opportunities; managers are making long-term bets in areas where they have the highest conviction.
Mutual funds versus foreign investors
Cash and Alternatives
Foreign portfolio investors may use IPOs to make quick gains because they can invest across a wide range of global markets, according to Baliga.
Long-Term Conviction
Mutual funds generally act as patient investors, retaining shares when the original growth and fundamental investment case remains intact.
- Mutual-fund assets held
- Small-cap funds are sitting on ₹4.37 lakh crore.
- Study sample
- The Securities and Exchange Board of India analysed around 242 IPOs launched between April 2022 and October 2025.
- Sales after 30 days
- Mutual funds sold an average of 3% of their allotted shares; in more than 100 IPOs, they sold nothing.
- Sales after 90 days
- Mutual funds had sold an average of 15% of their allocations.
- Sales after 365 days
- Across 167 IPOs, mutual funds sold 38% of allocation value, compared with 60% for foreign portfolio investors.
- Recent index performance
- Over eight months, the Nifty Smallcap 250 gained 10%, while the Nifty 50 fell 7%.
- Longer-term index performance
- The Nifty 50 delivered annualised growth of 8%, compared with 19% for the Nifty Smallcap 250 over the stated period.