Inflow slowdown hits large, mid and smallcap funds in December. Is investor sentiment cooling?

Despite only a mild market decline of up to 1% in December, monthly inflows into large, mid and smallcap mutual funds dropped by up to 13%. Mutual fund experts believe that investors appear to be adopting a more selective and disciplined approach in these segments, balancing return expectations with valuation comfort.

Himanshu Srivastava, Principal Research, Morningstar Investment Research India, said the moderation in flows could, to some extent, be attributed to cooling momentum in the midcap and, more specifically, the smallcap category during the month, where inflows tapered after a strong run-up in valuations and periodic market corrections.

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Additionally, markets remained volatile during the period, prompting investors to capitalise on profit-booking opportunities as and when they arose, Srivastava added.

In December, the BSE Sensex and Nifty50 fell 0.49% and 0.17%, respectively. Nifty Midcap 150 TRI and Nifty Smallcap 250 TRI declined 0.42% and 0.50%, respectively, over the same period.

According to monthly data from the Association of Mutual Funds in India, inflows into largecap funds declined 4% to Rs 1,567 crore in December from Rs 1,639 crore in November.

Midcap and smallcap funds saw declines of 7% and 13%, respectively, in monthly inflows. Midcap funds received inflows of Rs 4,175 crore in December compared with Rs 4,486 crore in November, while smallcap funds received Rs 3,823 crore against Rs 4,406 crore in the previous month.

Juzer Gabajiwala, Director, Ventura, said small and midcap schemes have seen good traction despite muted performance during 2025. This indicates that more investors are now aware and are buying on dips.

Largecap funds delivered an average negative return of 0.38% in December. There were 34 funds in the category, of which Samco Large Cap Fund posted the steepest decline of around 1.67%, while HSBC Large Cap Fund delivered the highest return of around 0.55% during the period.

Mid-cap funds recorded an average negative return of 1.06% in December. There were 32 funds in the category, including a SIF, Qsif Equity Ex-Top 100 Long-Short Fund. Motilal Oswal Midcap Fund fell the most by around 4.44%, while ITI Mid Cap Fund delivered the highest positive return of 1.09%.

Small-cap funds posted an average negative return of 1.52% in December. There were 32 funds during the period, of which JM Small Cap Fund declined the most by around 4.20%, while Edelweiss Small Cap Fund recorded the lowest decline of around 0.10%.

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Suranjana Borthakur, Head of Distribution and Strategic Alliances, Mirae Asset Investment Managers India, said that with valuations in the mid and smallcap segments appearing relatively expensive and market performance remaining uneven, flexi-cap funds have emerged as a preferred option.

In December, only one smallcap fund was launched. Samco Small Cap Fund collected aRs 131 crore during its NFO period.

(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own and do not represent the views of The Economic Times.)

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