MidCap, SmallCap inflows in 2025 hit record high despite scheme delivers muted returns

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Of the 140 stocks in the BSE MidCap index, 86 ended the year with negative returns, while in the BSE SmallCap index, 871 of the 1,186 stocks were in the red. In the BSE100 index, 61 stocks posted gains and 39 recorded losses.

Mid-cap and small-cap mutual funds saw record inflows in 2025 despite volatility
Domestic investors boosted inflows as foreign investors shunned mid and small-cap funds.
Mid and small-cap funds outperformed individual portfolios despite weak markets.

Inflows into mid-cap and small-cap mutual fund schemes touched record levels in 2025 despite sharp volatility in broader markets, the absence of foreign investors from these segments, stretched valuations, and muted earnings.

AMFI data showed that mid-cap schemes received Rs 49,939 crore during the year, up 46 percent from a year earlier, while small-cap schemes attracted Rs 52,321 crore, an increase of 53 percent.

Market performance remained mixed during the period. The BSE MidCap index rose 1.1 percent in 2025, while the BSE SmallCap index declined 6.6 percent. In comparison, the Sensex and Nifty gained nearly 9 percent and 10.5 percent, respectively.

Axis Securities’ Rajesh Palviya said the inflows were supported by steady SIP investments and investors continuing to add to their mutual fund holdings, based on the strong three-year and five-year outperformance of mid-cap and small-cap stocks over large-cap shares.

Market breadth stayed weak. Of the 140 stocks in the BSE MidCap index, 86 ended the year with negative returns, while in the BSE SmallCap index, 871 of the 1,186 stocks were in the red. In the BSE100 index, 61 stocks posted gains and 39 recorded losses.

Palviya said investors have been using market declines to average their investments, as SIP inflows into mid-cap and small-cap schemes continue on a regular basis.

Domestic investors have been the main source of net inflows over the past two years and have preferred mid-cap and small-cap schemes over large-cap funds. Foreign investors have largely stayed away from these segments and have mainly been selling large-cap stocks, which has further concentrated domestic flows into mid-cap and small-cap schemes.

The share of mid-cap and small-cap schemes in total equity inflows also increased during the year. Mid-cap funds accounted for a record 14.26 percent of total equity inflows, up from 8.7 percent in 2024 and 14.18 percent in 2023. Small-cap funds also saw their share rise to a two-year high of 14.26 percent, compared with 8.68 percent in 2024 and 25.4 percent in 2023.

Total equity inflows for the year stood at Rs 3.51 lakh crore, down 11.19 percent from Rs 3.94 lakh crore in 2024 and Rs 1.62 lakh crore in 2023.

Analysts said the absence of outflows despite nearly 16 months of muted returns indicates continued investor commitment. They said many investors remain focused on a three- to four-year horizon, even as near-term returns have been weak, while investment in assets such as gold and silver at current elevated prices is harder to justify for long-term allocations

Independent research analyst Ambreesh Baliga said inflows into mutual funds are likely to continue going ahead as mid-cap and small-cap funds have delivered better results than individual portfolios. While many individual portfolios are down 20 percent to 30 percent or more, he said even the worst-performing mid-cap and small-cap funds were down only about 5 percent to 6 percent as of the end of December.

Baliga said investor interest remains as long as losses are limited. He added that when losses become large, investors stop averaging, liquidity in the secondary market declines, selling pressure rises, and stocks can fall further, sometimes leading to margin calls.

Courtsey To : Moneycontrol