Mid-cap, small-cap mutual fund AUM jumps to ₹8.26 lakh crore, clocking up to 40% CAGR in 5 years; SIP inflows rise 15% YoY amid volatility

India’s mid- and small-cap mutual fund segments have seen a sharp expansion in assets over the past five years, driven by strong retail participation and sustained inflows, even as emerging market volatility clouds the near-term outlook.

According to a report by ICRA Analytics Ltd, mid-cap fund assets under management (AUM) grew at a compounded annual growth rate (CAGR) of 32.41% to ₹4.62 lakh crore as of February 2026, up from ₹1.13 lakh crore in February 2021. Small-cap funds recorded an even steeper 39.93% CAGR, with AUM rising to ₹3.64 lakh crore from ₹67,764 crore during the same period.

This translates into a combined AUM of over ₹8.26 lakh crore across the two categories, underscoring their increasing relevance in investors’ portfolios.

Fund flows have also staged a recovery. Mid-cap funds recorded net inflows of ₹4,003 crore in February 2026, while small-cap funds attracted ₹3,881 crore—marking a reversal from outflows seen in February 2021.

However, the near-term trajectory remains uncertain. Ongoing geopolitical tensions and sustained foreign institutional investor (FII) outflows from Indian equities are likely to weigh on sentiment, particularly in the more volatile mid- and small-cap segments. Investors are expected to adopt a cautious stance as market fluctuations persist.

Returns mixed; SIPs provide stability

Performance across top schemes reflects a divergence between short- and long-term trends. While several funds continue to deliver over 20% CAGR on a three- and five-year basis, one-year returns have turned uneven, with some schemes slipping into negative territory amid recent corrections.

Amid this volatility, systematic investment plans (SIPs) continue to anchor flows. SIP contributions rose 14.79% year-on-year to ₹29,845 crore in February 2026, compared with ₹25,999 crore in the year-ago period, highlighting sustained retail confidence and the growing financialisation of savings.

Long-term outlook remains intact

Despite near-term headwinds, the structural case for mid- and small-cap funds remains strong. Analysts suggest that disciplined investing through SIPs and a longer investment horizon could help investors navigate volatility and benefit from compounding.

Going forward, the balance between resilient domestic inflows and external pressures will be crucial in shaping the trajectory of these high-growth fund categories.