Inflows into mid-cap and small-cap mutual fund schemes hit record highs in 2025, defying sharp market volatility, muted earnings growth, stretched valuations and limited participation by foreign investors.
According to AMFI data, mid-cap funds attracted Rs 49,939 crore during the year, a 46 percent rise from 2024, while small-cap schemes saw inflows of Rs 52,321 crore, up 53 percent year-on-year.
Market returns, however, remained mixed. The BSE MidCap index gained just 1.1 percent in 2025, while the BSE SmallCap index declined 6.6 percent. In contrast, the Sensex and Nifty advanced nearly 9 percent and 10.5 percent, respectively.
Axis Securities’ Rajesh Palviya said steady SIP inflows and continued accumulation by investors supported fund flows, driven by the strong three-year and five-year outperformance of mid-cap and small-cap stocks over large caps.
Market breadth remained weak. Of the 140 stocks in the BSE MidCap index, 86 ended the year in negative territory. In the BSE SmallCap index, 871 of 1,186 stocks delivered losses. In comparison, 61 stocks in the BSE100 index posted gains, while 39 declined.
Palviya noted that investors continued to average during market corrections, with SIP inflows into mid-cap and small-cap schemes remaining consistent.
Domestic investors have been the dominant source of net inflows over the past two years and have shown a clear preference for mid-cap and small-cap funds over large-cap schemes. Foreign investors, meanwhile, have largely stayed away from these segments and continued to sell large-cap stocks, further channeling domestic flows into mid and small caps.
The share of these categories in total equity inflows also rose. Mid-cap funds accounted for a record 14.26 percent of total equity inflows in 2025, up from 8.7 percent in 2024 and 14.18 percent in 2023. Small-cap funds also captured 14.26 percent, marking a two-year high compared with 8.68 percent in 2024 and 25.4 percent in 2023.
Overall equity inflows for the year stood at Rs 3.51 lakh crore, down 11.19 percent from Rs 3.94 lakh crore in 2024, though sharply higher than Rs 1.62 lakh crore in 2023.
Analysts said the absence of meaningful outflows despite nearly 16 months of muted returns reflects sustained investor conviction. Many investors continue to maintain a three-to-four-year investment horizon, while elevated gold and silver prices make those assets less attractive for long-term allocation.
Independent analyst Ambreesh Baliga said mutual fund inflows are likely to remain strong as mid-cap and small-cap funds have performed better than individual stock portfolios. He noted that while many individual portfolios are down 20 to 30 percent or more, even the worst-performing mid- and small-cap funds were down only about 5 to 6 percent as of end-December.
Baliga added that investor interest usually remains intact as long as losses stay contained. However, when declines deepen, averaging slows, secondary market liquidity dries up, selling pressure intensifies, and stocks can fall further, sometimes triggering margin calls.
