Small-cap and mid-cap funds attracted record monthly inflows in September, accounting for 44% of total net equity mutual fund inflows even as a market correction tested investor appetite. The concentration also raises questions about liquidity if investors rush to redeem their holdings.
Small-cap funds received net inflows of ₹9,038 crore in September, surpassing their previous record of ₹7,973 crore in August. Mid-cap funds attracted ₹7,834 crore, also exceeding their previous monthly high of ₹6,989 crore, set in August, according to data from the Association of Mutual Funds in India (Amfi).
The tilt towards small-cap funds has strengthened over time. Their share of gross equity mutual fund inflows averaged 10.9% in fiscal year 2024 (FY24), rising to 12.4% in FY25 and around 16.4% in FY26, with the share reaching 17.4% in September 2026, said Seemant Shukla, chief executive officer at Quantum Mutual Fund.
Viraj Gandhi, chief executive officer at SAMCO Mutual Fund, said small-cap and mid-cap indices had outperformed large-caps over the past year. “While the large-cap index (Nifty 50) has fallen around 12%, the mid-cap index (Nifty Midcap 150) has been broadly flat and the small-cap index (Nifty Smallcap 250) has gained around 3%. Small-cap and mid-cap indices are also close to their all-time highs, while the large-cap index is around 15% below its peak,” Gandhi added.
Liquidity remains a risk
The concentration of inflows could become a concern if investors start redeeming their investments, Shukla said. Liquidity is a key risk for small-cap funds, particularly during periods of redemption pressure.
If a larger share of inflows comes through systematic investment plans (SIPs), investors may be more likely to remain invested for longer, reducing the risk of sudden redemptions, he said.
Amfi’s latest available stress-test data for August shows that Quant Small Cap Fund would take around 48 days to liquidate 50% of its portfolio, followed by HDFC Small Cap Fund at 46 days. In July, HDFC Small Cap Fund would have taken 45 days.
The rush towards small-cap and mid-cap funds showed some signs of easing in September. Their combined share of total net equity inflows fell to 44% from 51% in August. Large-cap funds attracted net inflows of ₹859 crore after recording outflows for two consecutive months.
Equity, debt inflows
Overall, inflows into equity mutual fund rose 31% sequentially to ₹38,293 crore in September, as investors continued to invest during a market correction. The Nifty 50 fell 5.96% during the month, while the Nifty Smallcap 250 and Nifty Midcap 150 declined 3.07% and 6.31%, respectively.
September’s net equity inflows were close to the ₹40,365 crore recorded in March, when the Nifty 50 fell 10.19%.
Monthly SIP contributions rose 0.59% to a record ₹32,490 crore.
Debt mutual funds, meanwhile, recorded net outflows of ₹1.83 trillion in September. Liquid funds accounted for the largest outflow, at ₹95,743 crore, followed by money market funds at ₹50,846 crore.
“The decline was overwhelmingly driven by liquidity-oriented categories, suggesting quarter-end treasury adjustments and institutional cash-management activity rather than a broad-based deterioration in investor appetite for fixed income,” said Nehal Meshram, senior analyst at Morningstar Investment Research India.
