Small-Cap Flows Surge as Large-Cap Funds Register First Outflow in 30 Months Amid Market Shifts

Small-Cap Flows Surge as Large-Cap Funds Register First Outflow in 30 Months Amid Market Shifts​

Domestic investors maintained commitment to equities in July, continuing steady SIP contributions and strong flows into mid-cap and small-cap funds. These allocations provided a cushion against broader market moderation. The mutual fund industry’s average assets under management (AAUM) climbed by 4.3 percent month-on-month, reaching ₹85.76 lakh crore in July.

Small-Cap and Mid-Cap Funds Lead Robust Equity Flows​

Small-cap funds emerged as the standout performers among equity categories, attracting a substantial ₹7,768 crore in July, marking a rise from ₹5,602 crore in June. Similarly, mid-cap funds received ₹6,192 crore, sustaining positive momentum month-over-month.

This continued preference for smaller market caps signals investor willingness to take calculated exposure to higher-growth segments despite elevated valuations. Morningstar's Himanshu Srivastava noted that this trend reflects ongoing confidence in the long-term growth prospects of emerging businesses. He added that the recovery across mid and small-cap segments has reinforced crucial investor confidence.

Large-Cap Funds See First Outflow in Nearly Three Years​

In a notable shift, large-cap funds witnessed net outflows amounting to ₹1,322 crore in July. This marks the first negative flow recorded by this category in nearly 30 months, with the last outflow occurring in December 2023.

AMFI’s Venkat Chalasani attributed this reversal partly to profit booking among domestic investors. Redemptions in large-cap funds stood at ₹6,067 crore, against mobile funds of approximately ₹4,700 crore and a redemptive trend observed in dividend yield, value/contra, and ELSS funds. Experts suggest that this outflow indicates investors may be favouring categories offering greater growth potential over concentrated pure large-cap exposure.

Debt Schemes Reverse Sharply as Liquidity Inflows Materialize​

Debt-oriented schemes experienced a significant reversal in July, attracting net inflows of ₹1.88 lakh crore after recording outflows of ₹1.09 lakh crore the previous month. This turnaround was largely driven by liquidity-oriented categories within the sector.

Liquid funds attracted ₹1.19 lakh crore, while overnight funds secured ₹40,413 crore and money market funds garnered ₹21,180 crore. All three categories had seen sizeable redemptions in June. However, on a year-to-date basis, debt schemes have recorded net inflows of ₹50,945 crore from January to July 2026, which is significantly lower compared to the ₹2.28 lakh crore generated during the same period last year.

Passive and Specialized Funds Show Resilience​

Passive mutual fund schemes attracted a robust ₹12,517 crore in July, pushing their Assets Under Management (AUM) to ₹15.61 lakh crore from ₹15.30 lakh crore in June. Other ETFs contributed ₹9,512 crore of these inflows. Specifically, index funds received ₹1,537 crore, while gold and silver ETFs attracted ₹1,559 crore and ₹1,285 crore respectively.

Specialised Investment Funds (SIFs) expanded rapidly, with their assets rising 29.8 percent in July to reach ₹23,177 crore. SIFs received ₹4,922 crore during the month. Hybrid investment strategies accounted for ₹3,468 crore of these inflows, while equity-oriented strategies secured ₹1,454 crore.

Global Hedge Allocation and ETF Moderation​

Gold ETFs attracted ₹1,559 crore in July, maintaining a positive flow streak, though this is down from the ₹3,443 crore received in June. Market experts suggest that this moderation could stem from profit booking following strong gold appreciation earlier in the year.

Silver ETFs also saw positive inflows of ₹1,285 crore. However, the AUM for silver ETFs declined to ₹77,676 crore from ₹78,943 crore in June. Chalasani noted that this decline in assets was due to negative mark-to-market movement despite the reported inflow.

NFO Activity and Sectoral Traction Remain High​

The mutual fund industry continued a vigorous pace of new product launches in July. The sector launched 25 mutual fund New Fund Offers (NFOs), mobilizing a collective ₹2,022 crore. Passive products led this pipeline with 16 schemes garnering ₹507 crore.

In the specialized segment, three SIF NFOs were launched, raising approximately ₹788 crore during July. The number of distributors qualified to market SIFs also increased, rising to 859 in July from 717 in June, indicating growing market participation.