Small-cap funds hit record ₹7,768 cr inflows as folio share hits 30%

The small-cap and mid-cap fund surge has reached unprecedented levels in terms of investor participation. As of July 2026, SMID funds had 55 million active folios, representing nearly 30% of the 187.3 million active equity folios in the industry, according to Business Standard. This represents a dramatic increase from 19% share in July 2022, highlighting the accelerating shift towards high-risk equity segments. The two categories have witnessed a further spurt in investor interest in the past two months, with their combined folio additions reaching an 11-month high of 815,000 in July. Net inflows for these categories were at an all-time high of nearly ₹14,000 crore, as reported by Business Standard. The growing small-cap and mid-cap share in the folio count has come at the cost of other categories, especially large-cap funds, whose share in the total folio count has steadily declined from 14.4% in July 2022 to 9% in July 2026.

The biggest surprise came from debt funds, which recorded net inflows of ₹1.88 lakh crore in July after witnessing an outflow of ₹1.09 lakh crore in June. According to AMFI data, this represents the sharpest reversal in debt fund flows, with 96% of the debt inflows coming from liquid, overnight and money-market funds. As per InCred Money's Nitin Agrawal, the reversal was largely mechanical and should not be over-interpreted, as most Treasury activities that led to outflows in June generally get reversed in July. The ₹1.88 lakh crore inflow in debt funds helped the overall mutual fund industry stage a sharp recovery, with the industry recording net inflows of ₹2.36 lakh crore in July compared with a net outflow of ₹52,949 crore in June. Venkat Chalasani, Chief Executive of AMFI, noted that overall mutual fund inflows surged to ₹2.36 lakh crore in July, aided by strong debt fund investments of ₹1.87 lakh crore. Saugata Chatterjee, President and Deputy CEO of Nippon India Mutual Fund, said sustained inflows into mid- and small-cap funds reflect investor confidence in India's long-term growth prospects.

Four equity fund categories — large-cap, dividend-yield, value, and ELSS — witnessed net outflows in July 2026, even as most delivered positive returns during the month. According to AMFI data, large-cap funds experienced net outflows of ₹1,322 crore in July, marking the first monthly outflow in more than 30 months despite delivering average returns of 2.4%. Dividend-yield funds saw outflows of ₹169 crore with returns improving to 1.9% from 1.1% in June, while value funds recorded outflows of ₹145 crore despite positive returns of 1.4%. ELSS funds witnessed outflows of ₹959 crore, reflecting post-tax-season redemptions and the growing preference for the new tax regime. Jasmeet Singh, Executive Director at Anand Rathi Wealth, attributed these outflows to a shift towards broader market segments, noting that investors are reallocating towards mid- and small-caps as markets recovered and valuations became more reasonable following recent corrections. Aditya Agarwal, Co-Founder of Wealthy.in, explained that the outflows reflect stronger investor preference for mid- and small-cap funds, while value/contra funds faced weaker near-term demand despite their long-term appeal.

The recent surge in investor interest has been driven by exceptional performance in small-cap and mid-cap segments. In financial year (FY) 2027 so far, the Nifty Smallcap 100 and Nifty Midcap 100 indices are up 31% and 22% respectively, compared with only 9% growth for the Nifty50 in the same period. According to Value Research data, the average 1-year smallcap fund return currently stands at 15%, while annualised average 3-year and 5-year returns are at 16%. Himanshu Srivastava from Morningstar Investment Research India noted that the willingness to deploy fresh capital into these categories reflects investors' comfort with taking calculated exposure to higher-growth segments of the market. Suranjana Borthakur from Mirae Asset Investment Managers observed that small-cap funds saw a meaningful pickup in inflows in July, suggesting investors continue to chase growth opportunities even as broader flows cool. The sharp surge has pushed small-cap and mid-cap fund performance back to attractive levels, with improving underlying earnings supporting the segment beyond valuation concerns.

SIP contributions remained resilient at ₹31,961 crore in July, marking the fifth consecutive month above the ₹31,000-crore threshold. According to Bajaj Broking's Shashwat Singh, retail investment persistence remained highly resilient despite the overall moderation in equity flows. The number of contributing SIP accounts increased to 9.90 crore from 9.78 crore in the previous month, indicating growing participation in systematic investment plans. Navneet Munot, Managing Director and CEO of HDFC AMC, noted that investors have responded to market volatility with patience and a long-term approach, with disciplined monthly investments by crores of Indian households helping create a deep and stable pool of domestic capital. Assets under the newly launched specialised investment funds (SIFs) rose 30% month-on-month to ₹23,177 crore, supported by fresh investments of ₹4,922 crore. There were 25 new fund offers (NFOs) in July, which attracted investments worth ₹2,022 crore during the month. Gold ETFs attracted ₹1,559 crore in July, with net inflows during January-July jumping to ₹38,878 crore, more than four times the ₹9,277 crore recorded in the same period last year, reflecting continued demand for safe-haven assets.