Investors chase risky options, hinting at a shift in wealth creation trends, says expert

Amid persistent global growth concerns and market volatility, Indian investors are turning decisively towards mid- and small-cap mutual funds as powerful engines for wealth creation. Mutual funds overall have staged a strong comeback, with total inflows surging to Rs 49,095 crore in June 2025—a sharp 69% jump from May’s Rs 29,108 crore—highlighting growing investor confidence in India’s economic resilience.

While traditional large-cap funds have long anchored equity portfolios, the real story this year is unfolding in the mid- and small-cap segments. Investors have collectively poured a staggering Rs 47,000 crore into these categories during the first half of the calendar year alone, reflecting not merely optimism but a calculated pursuit of higher growth potential.

Small-cap funds have particularly gained ground, with assets under management (AUM) swelling to 88% of the size of large-cap funds, according to finfluencer B Padmanaban. Mid-cap funds have surged even further, boasting an AUM equivalent to 108% of large-cap funds. Inflows tell the same story: mid-cap funds attracted Rs 21,870 crore between January and June 2025, while small-cap funds saw even higher inflows of Rs 24,774 crore.

Recent AMFI data underscores this trend. Equity mutual fund inflows rose 24% month-on-month in June to Rs 23,568 crore, led by Flexi Cap funds, which jumped 49% to Rs 5,733 crore. However, small-cap funds weren’t far behind, with inflows rising 25.2% to Rs 4,024 crore, while mid-cap funds saw a 33.7% increase to Rs 3,754 crore over May figures.

Despite caution among some market participants about stretched valuations in mid- and small-cap segments, the appetite remains robust. Industry experts attribute this momentum to the perception that these funds provide exposure to high-growth segments of the economy often overlooked in large-cap investing.

“Understanding these shifts is crucial,” Padmanaban notes. “Those who identify the emerging opportunities beyond the traditional large-cap space stand to benefit from the potential for superior returns.”

The resurgence in flows has propelled the mutual fund industry’s overall AUM to a record ₹74.40 lakh crore as of June, an increase of ₹2.2 lakh crore from May. Equity assets now account for 45% of this pie, standing at ₹33.46 lakh crore.

As wealth creation dynamics evolve, mid- and small-cap funds are increasingly seen as the new frontiers for investors willing to ride the volatility in pursuit of higher growth. For those ready to act rather than merely observe, these segments may well hold the key to the next wave of financial success.