Smallcaps Take the Front Seat of Equity Inflows in May, Beat Large-Cap and Mid-Cap Schemes

Even as equity inflows witnessed a moderation in May, it was the smallcap space that emerged as the clear favourite, outpacing flows seen across large-caps and midcaps. Smallcap equity scheme drew inflows worth Rs 3,214.21 crore, higher than Rs 2,808.68 crore in mid-cap and Rs 1,250.47 crore in large-cap schemes, according to data released by AMFI.

Side by side, the Nifty SmallCap 100 index also delivered stellar returns of around 8.7% in May, beating the Nifty Midcap 100’s 6% rise. With this, the momentum for largecaps, which had comfortably led the market rally in the first four months of 2025 also slowed down. The Nifty 50 rose just 1.7% in May, taking a breather after a 3% run in the four months prior.

This reversal in momentum comes amid a broader cooling in mutual fund enthusiasm. Net inflows into equity mutual funds fell nearly 22% in May compared to April, with largecap schemes seeing allocations more than halved. But even as overall flows tapered, smallcaps continued to command attention, drawing over 15% of total equity inflows between January and May.

Small-Cap funds continued to shine and retail and high net-worth investors seemed confident in India’s small-cap story, Narender Singh, smallcase manager and founder of Growth Investing, said in a note.

Even as overall equity mutual fund inflows have lost some momentum for five straight months, smallcap schemes have been able to garner investors’ support as inflows in these schemes outpaced midcaps and largecaps by a wide margin in 2025 thus far. Ironically though, smallcap stocks have been the worst hit on the bourses.

The Nifty Smallcap 100 index has declined over 12% between January and April this year, while Nifty Midcap 100 index has fallen over 5%. Despite large-cap mutual funds receiving the least investor attention, the Nifty 50 index has delivered healthy gains of over 3% during the first four months of 2025.

All told, equity fund inflows for January–May 2025 fell by over 28% compared to the final five months of 2024, totalling ₹1.37 lakh crore.

Flexi Cap Schemes Shine Brighter

In a year clouded by global policy shifts and market ambiguity, one mutual fund category is emerging as a clear investor favourite, and that is flexi cap scheme. While most equity mutual fund categories saw allocations taper off in the first five months of 2025, smallcaps and flexi caps stood out as exceptions. And of these, flexi caps stole the limelight — not just for their performance, but also for the story they tell about investor sentiment in a turbulent market.

Since tariff tremors resurfaced with Donald Trump’s return as US President in January, global markets have been jittery. Amid such volatility, Indian investors appear to be rooting for versatility. Flexi cap schemes, which invest freely across large-, mid-, and small-cap segments without rigid allocation rules, have become the go-to haven for those looking to sail through turbulent times.

Nearly 19% of all equity inflows in January–May poured into flexi cap funds. In May alone, the share crossed 20%, the highest among all categories. The appeal is clear—in uncertain times, flexibility is power. These funds allow fund managers to dynamically shift exposure based on where the market shows promise, and that adaptability has resonated. In a market without clear winners, investors are probably choosing funds that do not have to pick sides.

“Given the ongoing international trade tariffs negotiations and the interest rate scenario, investors' willingness to invest in such conditions and the attractiveness of alternate deployment sources will be a key monitorable for the next two to three months,” Sanjay Agarwal, senior director of CareEdge Ratings, said in a note.