Mid-cap, Small-cap Mutual Funds Hit Record Inflows in 2025 Despite Market Volatility
Mid-cap and small-cap mutual funds recorded exceptional inflows in 2025, with mid-cap schemes receiving ₹49,939.00 crore (up 46%) and small-cap schemes attracting ₹52,321.00 crore (up 53%). Despite market volatility and the BSE SmallCap index declining 6.60%, domestic investors continued steady SIP investments, driven by the long-term outperformance of these segments over large-cap stocks. Both categories increased their share of total equity inflows to 14.26% each, while foreign investors largely stayed away from these segments.
*this image is generated using AI for illustrative purposes only.
Mid-cap and small-cap mutual fund schemes achieved unprecedented inflows in 2025, defying challenging market conditions and demonstrating sustained investor confidence in these segments. According to AMFI data, mid-cap schemes received ₹49,939.00 crore during the year, representing a substantial 46.00% increase from the previous year, while small-cap schemes attracted ₹52,321.00 crore, marking a robust 53.00% growth.
Market Performance and Challenges
Despite the record inflows, market performance presented a mixed picture throughout 2025. The underlying indices showed divergent trends, with broader market volatility creating challenging conditions for investors.
| Index | 2025 Performance | Comparison |
|---|---|---|
| BSE MidCap | +1.10% | Modest gains |
| BSE SmallCap | -6.60% | Negative returns |
| Sensex | +9.00% | Strong performance |
| Nifty | +10.50% | Outperformed mid/small caps |
Market breadth remained particularly weak across both segments. In the BSE MidCap index, 86 out of 140 stocks ended the year with negative returns, while the BSE SmallCap index saw 871 of its 1,186 constituent stocks finishing in the red. This contrasted sharply with the BSE100 index, where 61 stocks posted gains against 39 recording losses.
Investment Flow Dynamics
Rajesh Palviya from Axis Securities attributed the strong inflows to steady SIP investments and investors' continued additions to their mutual fund holdings. This behavior was supported by the strong three-year and five-year outperformance of mid-cap and small-cap stocks over large-cap shares. Domestic investors emerged as the primary drivers of these inflows, having been the main source of net flows over the past two years.
Foreign investors largely remained absent from these segments, instead focusing on selling large-cap stocks. This behavior further concentrated domestic flows into mid-cap and small-cap schemes, creating a distinct investment pattern in the Indian mutual fund landscape.
Market Share and Total Equity Flows
The significance of mid-cap and small-cap schemes in the overall equity mutual fund ecosystem grew substantially during 2025. Both categories achieved notable increases in their share of total equity inflows.
| Fund Category | 2025 Share | 2024 Share | 2023 Share |
|---|---|---|---|
| Mid-cap funds | 14.26% | 8.70% | 14.18% |
| Small-cap funds | 14.26% | 8.68% | 25.40% |
Total equity inflows for 2025 stood at ₹3.51 lakh crore, representing an 11.19% decline from ₹3.94 lakh crore in 2024, though significantly higher than ₹1.62 lakh crore recorded in 2023.
Investor Behavior and Outlook
Analysts noted that the absence of significant outflows despite nearly 16 months of muted returns indicates sustained investor commitment to these segments. Many investors maintain a three- to four-year investment horizon, even as near-term returns have been disappointing.
Independent research analyst Ambreesh Baliga highlighted that mid-cap and small-cap funds have delivered superior results compared to individual portfolios. While many individual portfolios declined by 20.00% to 30.00% or more, even the worst-performing mid-cap and small-cap funds were down only about 5.00% to 6.00% as of the end of December.
Palviya observed that investors have been strategically using market declines to average their investments, with SIP inflows into mid-cap and small-cap schemes continuing on a regular basis. This disciplined approach has helped maintain steady flows despite market volatility and challenging conditions throughout 2025.
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