Retail investors cling to risky mutual funds even as HNIs pare exposure

Retail investors and high net-worth individual (HNI) investors reacted differently to the equity market volatility over the past nine months, going by their mutual fund (MF) investment pattern.

 

In the September 2024-June 2025 period, while retail investors continued with their high-risk bets, HNI portfolios veered towards safer options in the MF space.

 

According to data from the Association of Mutual Funds in India (Amfi), retail investors' share in the total assets under management (AUM) of smallcap funds rose from 63.4 per cent in September 2024 to 65.2 per cent in June 2025. In the same period, HNI investors' share declined from 32.2 per cent to 30.5 per cent. 

A similar story played out in the two other high-risk categories — midcap and sectoral & thematic. The largecap and large & midcap categories witnessed a reverse trend — rise in HNI ownership and a decline in retail share.

 

"Retail investors have shown greater enthusiasm in the high-growth segments. Smallcap AUM for retail rose from ₹1.91 trillion in March to ₹2.31 trillion in June, a 20.76 per cent rise, while midcap AUM jumped from ₹2.12 trillion to ₹2.49 trillion, up 17.51 per cent. HNIs also added, but at a relatively measured pace, with 18.41 per cent AUM growth in smallcaps and 16.16 per cent in midcap funds," said Feroze Azeez, joint chief executive officer (CEO), Anand Rathi Wealth.

 

The HNI investment trend is in line with the fund recommendations in recent times. Over the past two years, experts have highlighted valuation risk in the smallcap and midcap space, and have recommended investors to opt for hybrid funds or largecap-oriented equity schemes.

 

"Affluent and institutional investors are showing a preference for largecap-oriented funds, which provide liquidity and valuation comfort, while retail investors are taking higher risks without necessarily factoring in valuations. This reflects a classic difference in investor behaviour — retail tends to look at recent returns while larger portfolios weigh risk-adjusted returns and downside protection," said Pallav Bagaria, director at Sapient Finserv.

 

The quarterly data is only available from September 2024.

 

According to experts, the shift visible in the category-wise share of retail and HNI investors is also an outcome of the lump sum and systematic investment plan (SIP) investment trend during the nine-month period. While lump sum or one-time investments slowed considerably in 2025, SIP investments continued to flow at a higher rate.

 

MFs classify an investment account as HNI if it receives over ₹2 lakh in a single instalment. Hence, most SIP accounts, even if they belong to wealthy investors, do not get classified as HNI. Experts recommend the SIP route for smallcap and midcap fund investments, given that they witness higher volatility. A large chunk of SIP inflows each month go into these two categories.