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 30 per cent of active equity mutual fund (MF) folios owing to a renewed surge in investor interest, which has led to a sharp pickup in folio additions and inflows into the two high-risk categories. 

As of July, SMID funds had 55 million active folios of the 187.3 million. 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 addition and net inflows, witnessed a further spurt in investor interest in the past two months. 

In July, their combined folio additions were at an 11-month peak of 815,000, while net inflows were at an all-time high of nearly ₹14,000 crore. 

The recent increase in investor interest has come on the back of a sharp rally in midcap and smallcap stocks since April this year.

In 2026-27 so far, the Nifty Smallcap 100 and Nifty Midcap 100 indices are up 31 per cent and 22 per cent, respectively. 

The Nifty 50, in comparison, has increased only 9 per cent in the same period. 

The average one-year smallcap fund returns stand at 15 per cent, while the annualised average three- and five-year returns are at 16 per cent, shows the data from Value Research. 

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

“The willingness to deploy fresh capital in these categories reflects investors’ comfort with taking a 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. 

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

The growing share of smallcaps and midcaps in folios has come at the cost of other categories, especially largecap funds. 

The share of largecap funds in the total has declined in the past four years from 14.4 per cent in July 2022 to 9 per cent in July this year. 

 

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 ₹79,000 crore as of June end. HDFC Smallcap and SBI Smallcap, the other schemes in the top three, managed around ₹40,000 crore. 

The strong investor interest had led the regulator, the Securities and Exchange Board of India, to increase the mandatory disclosures in the case of smallcap and midcap funds.