Midcap, Smallcap Mutual Funds Rally; Experts Urge Caution Amid Global Uncertainty

New Delhi— Mid-cap and small-cap mutual funds continue to deliver strong returns, making them a popular choice among investors. However, experts are advising caution in the near term due to global uncertainties and volatile market conditions.

According to a report by ICRA Analytics, citing data from the Association of Mutual Funds in India, both categories have seen significant growth over the past five years, driven by strong investor participation and consistent inflows.

Mid-cap funds recorded a robust five-year CAGR of 32.41%, with assets under management (AUM) rising from Rs 1.13 lakh crore in February 2021 to Rs 4.62 lakh crore in February 2026. Small-cap funds performed even better, delivering a CAGR of 39.93%, as AUM surged from Rs 67,764 crore to Rs 3.64 lakh crore during the same period.

Investor sentiment has also improved sharply. Mid-cap funds saw net inflows of Rs 4,003 crore in February 2026, compared to a marginal outflow five years ago. Similarly, small-cap funds attracted Rs 3,881 crore in inflows, reversing earlier outflows.

Despite the strong long-term performance, the report warns that short-term trends could remain volatile. Factors such as global geopolitical tensions and foreign fund outflows from Indian equity markets are likely to impact investor sentiment.

Still, the long-term outlook remains positive. Many schemes in these categories have delivered over 20% annualised returns over five years, highlighting their wealth creation potential.

Experts recommend a disciplined investment approach through Systematic Investment Plan (SIPs) and maintaining a longer investment horizon to manage volatility and benefit from compounding.

Retail participation continues to grow steadily. SIP inflows rose nearly 14.79% year-on-year to Rs 29,845 crore in February 2026, compared to Rs 25,999 crore in the same month last year, reflecting sustained confidence in mutual funds despite market fluctuations.

With inputs from IANS