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.

Author Profile

Ganpat Singh Chouhan

My name is Ganpat Singh Choughan. I am an experienced content writer with 7 years of expertise in the field. Currently, I contribute to Daily Kiran, creating engaging and informative content across a variety of categories including technology, health, travel, education, and automobiles. My goal is to deliver accurate, insightful, and captivating information through my words to help readers stay informed and empowered.

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