Despite a surge in buy-on-dips behavior among retail investors, mutual fund performance has largely underwhelmed. According to brokerage firm Elara Capital, pure equity inflows during March–April accelerated nearly 40% versus the average monthly run-rate of the prior six months. This marks the third major "buy-the-dip" phase witnessed over the past two years, reflecting domestic investors' continued buying market corrections. The domestic market has been in a consolidation phase over the last two years, largely due to US tariffs, increased geopolitical tensions, weak earnings, stretched valuations, and the lack of AI trade.
The last two-year absolute return of the market benchmark Nifty 50 is just a little over 5%, while over the last year, the index has gone down by over 4%. However, this period has seen strong inflows by domestic investors. As reported by Elara Capital, the first surge in inflows came during October 2024 to January 2025, following the sharp correction after Donald Trump's victory. The second spike was seen in July 2025 when markets retraced back to their 200-day moving average, with the latest phase emerging during March–April 2026, following the sharp correction triggered by the US-Iran war.
While mutual fund investors have been buying the dips aggressively, they have not been rewarded adequately. According to Elara Capital's analysis, most schemes have delivered returns below debt over the last two years. The brokerage firm highlighted that the median two-year CAGR returns only for mid, small and multicap funds are marginally above fixed deposit returns, assuming debt generated pre-tax returns of nearly 7–8% (or nearly 5–5.5% post-tax). As per Elara's data, while mid, small, multi, and sectoral funds have performed better, a majority of them delivered less than 9% CAGR returns over the last two years.
The median 2-year CAGR return of large-cap funds is 2.9%, while that of mid-cap funds is 8.7% and 6.1% for small-cap funds. Sector funds and multi-cap funds have delivered median 2-year CAGR returns of 6.7% and 6% respectively. According to Elara Capital, flows have become a key driver of returns, with categories attracting stronger incremental liquidity delivering relatively better performance. This is most visible in mid and small-cap funds, where sustained and accelerated inflows during corrections have translated into comparatively stronger returns versus other categories.
The acceleration in flows during corrections has been most pronounced in mid- and small-cap funds, both of which recorded fresh record-high inflows during March–April. As reported by Elara Capital, this continued domestic participation remains a key reason why market breadth and recovery momentum have remained resilient despite global risk-off phases. The incremental liquidity is increasingly concentrated in the broader market, with sustained domestic participation continuing to support market resilience even during challenging global conditions.
