Mid & Small Caps Dominate New Mutual Fund Folios in FY27

Mid- and small-cap mutual fund schemes have secured over 50% of new folios added by the mutual fund industry during the first four months of the current financial year (FY27). This represents the highest share recorded since the Association of Mutual Funds in India (Amfi) began tracking this specific data.

This significant shift contrasts sharply with FY21, when these categories made up only 2.91% of total folio additions, with small-cap schemes even experiencing a net decline.

Key Inflow Metrics

• Mid- and small-cap funds attracted approximately 56% of total equity fund inflows in July 2026.
• This marks the first time since 2023 that cumulative monthly inflows into these segments have exceeded half of the total equity inflows.

The robust investor interest is largely attributed by industry experts to the strong performance of mid- and small-cap stocks. The BSE MidCap and SmallCap indices demonstrated impressive gains during the first four months of FY27, significantly outperforming large-cap benchmarks.

Index Performance in FY27

• BSE MidCap index gained about 20%.
• BSE SmallCap index surged approximately 30%.
• Sensex and Nifty large-cap benchmarks gained around 8.5-9%.

DP Singh, joint CEO of SBI Mutual Fund, explained that investment decisions, particularly on fintech platforms, are often swayed by recent market performance. He noted the strong rally in mid- and small-cap stocks since March has been a primary driver of this elevated investor interest.

Singh also highlighted that the recent underperformance of large caps relative to mid- and small-caps has influenced investor interest in multi-cap and flexi-cap categories. This has led investors to channel more funds into dedicated mid- and small-cap schemes. Despite recent underperformance, Singh finds the continued flow of systematic investment plan (SIP) money into large-cap funds to be an encouraging sign.

Trideep Bhattacharya, president and CIO-equities at Edelweiss Mutual Fund, pointed to robust earnings momentum and upgrades within the mid- and small-cap segments as key contributors. He specifically mentioned companies leading in niche businesses or emerging as challengers to established players.

Vaibhav Porwal, co-founder of Dezerv, added that beyond the stock rally, investors are utilizing these funds for exposure to growth sectors. These include chemicals, real estate, textiles, media, and manufacturing, which often have limited representation in large-cap indices. Porwal’s analysis also shows that investors from outside tier-1 cities are allocating more to mid- and small-cap categories, indicating a higher appetite for risk in pursuit of superior returns.

As equity markets continue to experience volatility, Singh anticipates that mutual fund flows will remain influenced by recent market performance. Porwal echoed this sentiment, suggesting the observed momentum-chasing behavior among investors in FY27 is likely to persist.