Small-Cap Mutual Fund Inflows Surge by 23% to ₹5,720 Crore in January; Equity Fund Inflows Decline by 4%
Investor Confidence in Small-Cap Funds Remains Strong Despite Market Volatility
Despite ongoing volatility in the domestic stock markets, investors demonstrated a robust risk appetite for small-cap mutual funds, with inflows surging by 23% to ₹5,720 crore in January 2025. However, overall equity mutual fund inflows declined by 4%, totaling ₹39,687 crore during the same period.
The data reflects a divergent trend in investor behavior, where high-growth small-cap funds continue to attract strong inflows, while broader equity categories face moderation in investment activity.
Key Trends in Mutual Fund Inflows for January 2025
1. Small-Cap Funds Witness Unwavering Investor Demand
Small-cap funds have emerged as a preferred choice among retail investors, recording the highest percentage increase in inflows among equity fund categories.
- January 2025 Inflows: ₹5,720 crore (up 23% month-on-month).
- Investor Sentiment: Despite market volatility, investors remain optimistic about long-term growth potential in small-cap stocks.
- Risk Appetite: The high-return potential of small-cap funds continues to outweigh concerns over short-term volatility, leading to sustained investment momentum.
2. Sectoral & Thematic Funds Dominate Inflows
Among equity fund categories, sectoral and thematic funds attracted the highest inflows, totaling ₹9,016 crore in January.
- The strong inflows suggest that investors are increasingly adopting a theme-based investment approach, targeting high-growth sectors such as technology, healthcare, and infrastructure.
- Sectoral funds allow investors to capitalize on macro trends and government policies, driving selective inflows despite broader market headwinds.
3. Flexi-Cap Funds Continue to Gain Traction
Flexi-cap funds, known for their investment flexibility across market capitalizations, recorded an inflow of ₹5,697 crore in January.
- These funds remain a popular choice among investors seeking diversified exposure across large, mid, and small-cap stocks, mitigating risk during market fluctuations.
4. Dividend Yield Funds Record Lowest Inflows
Dividend yield funds received the lowest inflow among equity mutual fund categories, with just ₹214 crore in January.
- These funds, which focus on stocks with high and stable dividend payouts, tend to attract conservative investors seeking steady returns.
- The lower inflows indicate that investors are currently prioritizing capital appreciation over dividend-based investments.
Market Context: Why Small-Cap Funds Are Gaining Popularity Amid Market Volatility
The surge in small-cap fund inflows amid a declining broader equity market trend highlights investors’ confidence in long-term wealth creation opportunities.
1. Small-Cap Stocks as High-Growth Investment Vehicles
- Historically, small-cap stocks have outperformed mid and large-cap stocks over long investment horizons.
- Investors with a high-risk tolerance continue to bet on small-cap stocks despite short-term volatility.
2. Strong SIP Contributions Driving Small-Cap Inflows
- Retail participation in systematic investment plans (SIPs) has contributed significantly to sustained inflows in small-cap funds.
- With SIPs providing rupee cost averaging, investors remain committed to long-term investments, reducing concerns over market fluctuations.
3. India’s Economic Growth Prospects and Government Policies
- Strong GDP growth projections, policy support for manufacturing, infrastructure, and startups, and the Make in India initiative have fueled positive sentiment towards small-cap stocks.
- Small-cap companies, often at the forefront of economic expansion, are expected to benefit disproportionately from macroeconomic tailwinds.
