Nearly one in three MF equity folios now in smallcap, midcap funds

Folio additions by the two high-risk categories surge to 11-month high in July

Smallcap and midcap (SMID) funds now account for nearly one in every three active equity mutual fund (MF) folios as a renewed surge in investor interest has led to a sharp pickup in new folio additions and inflows into the two high-risk categories.

 

As of July 2026, SMID funds had 55 million active folios, or nearly 30 per cent of the 187.3 million active equity folios in the industry. The share was at 19 per cent in July 2022.

 

The two categories, which have consistently been among the top three active equity segments in terms of folio additions and net inflows, have witnessed a further spurt in investor interest in the past two months. In July, their combined folio additions were at an 11-month high of 815,000, while net inflows were at an all-time high of nearly Rs 14,000 crore.

 

The recent surge in investor interest has come on the back of a sharp rally in midcap and smallcap stocks since April 2026. In financial year (FY) 2027 so far, the Nifty Smallcap 100 and Nifty Midcap 100 indices are up 31 per cent and 22 per cent, respectively. The Nifty50, in comparison, has only gone up 9 per cent in the same period.

 

The sharp surge has pushed smallcap and midcap fund performance back to attractive levels. The average 1-year smallcap fund return currently stands at 15 per cent, while the annualised average 3-year and 5-year returns are at 16 per cent, shows data from Value Research.

 

According to experts, the performance has been the key factor behind the surge in investor interest.

 

“The willingness to deploy fresh capital into these categories reflects investors' comfort with taking calculated exposure to higher-growth segments of the market. Besides, the recent recovery in the mid- and small-cap segments appears to have reinforced investor confidence, encouraging continued allocations to these categories,” said Himanshu Srivastava, principal, manager research, Morningstar Investment Research India.

 

“Smallcap funds saw a meaningful pickup in inflows in July, suggesting investors continue to chase growth opportunities even as broader flows cool,” said Suranjana Borthakur, head of distribution & strategic alliances, Mirae Asset Investment Managers (India).

 

The growing smallcap and midcap share in the folio count has come at the cost of other categories, especially largecap funds. The share of largecap funds in the total folio count has steadily declined in the last four years from 14.4 per cent in July 2022 to 9 per cent in July 2026.

 

The growing investor concentration in the smallcap and midcap space has been a concern for the last two years. Experts have flagged liquidity risk as fund sizes continue to grow. The largest smallcap scheme — Nippon India Smallcap Fund — was managing Rs 79,000 crore as of June-end. HDFC Smallcap and SBI Smallcap, the other schemes in the top three, managed around Rs 40,000 crore.

 

The strong investor interest in the two categories in 2023-2024 had led the regulator to increase the mandatory disclosures in the case of smallcap and midcap funds.