Mid- and small-cap mutual funds have emerged as the fastest-growing segments in India’s mutual fund industry, with assets expanding at a sharp pace over the past five years—even as rising market volatility is now prompting caution among investors.
According to data analysed by ICRA Analytics, assets under management (AUM) of mid-cap funds grew at a 5-year CAGR of 32.41% to reach ₹4.62 lakh crore in February 2026, up from ₹1.13 lakh crore in February 2021.
Small-cap funds have grown even faster, clocking a CAGR of 39.93%, with AUM rising to ₹3.64 lakh crore from ₹67,764 crore over the same period.
Strong inflows signal continued investor interest
Despite recent market uncertainty, investor interest remains robust.
Mid-cap funds saw net inflows of ₹4,003 crore in February 2026
Small-cap funds attracted ₹3,881 crore
This marks a sharp turnaround from February 2021, when both categories witnessed net outflows.
The steady inflows highlight continued retail participation, particularly through systematic investment plans (SIPs), even as markets remain volatile.
Five-year returns drive popularity
The surge in AUM has been largely driven by strong long-term returns.
Several top-performing funds have delivered over 20–25% annualised returns over five years, including:
Mid-cap funds like Motilal Oswal Midcap Fund (25.1%) and HDFC Mid Cap Fund (24.6%)
Small-cap funds such as Quant Small Cap Fund (26.4%) and Nippon India Small Cap Fund (25.4%)
Data as on Feb 27, 2026, Less than 1-year Absolute returns, Greater than or Equal to 1 year Compound Annualized returns. Top 10 funds based on 5-year CAGR return
“The ongoing geo-political tensions and recent foreign fund outflow from Indian equity markets may impact the performance of mid and small cap funds in near term. Investors of mid and small-cap mutual funds are expected to adopt a cautious stance amid the ongoing market volatility.
Disciplined investing through SIPs (Systematic Investment Plan) and a long investment horizon can help investors benefit from compounding. Retail participation in mutual fund industry through SIP channel witnessed sustained momentum. The overall SIP inflows in February 2026 witnessed a strong growth with contributions increasing by nearly 14.79 per cent at Rs 29,845 crore as compared with Rs 25,999 crore in February 2025,” said the report by Icra Analytics.
Long-term returns remain strong
Data for top-performing schemes shows that both mid-cap and small-cap funds have delivered robust returns over the past five years:
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Quant Small Cap Fund: 26.4% (5-year CAGR) -
Nippon India Small Cap Fund: 25.5% -
Motilal Oswal Midcap Fund: 25.1% -
HDFC Mid Cap Fund: 24.6%
Even other funds in the category have delivered 22–24% returns, significantly outperforming large-cap funds and traditional investment options.
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