Small and Mid-Cap Funds Draw Strong Retail Investor Interest

Small and mid-cap mutual funds are seeing a surge in popularity among retail investors, as per recent data shared by ICRA Analytics and reported by Business Standard. Investors are increasingly turning towards these categories in the hope of securing higher returns and tapping into the growth potential of emerging companies.

While large-cap funds continue to offer stability and lower volatility, they are often tied to broader economic cycles and show limited scope for rapid expansion. Large-cap firms, being well-established and mature, are generally less agile in capturing new opportunities. On the other hand, small and mid-cap companies tend to operate in high-growth segments, with greater room to scale up, innovate, and expand market presence.

Ashwini Kumar, Senior Vice President and Head of Market Data at ICRA Analytics, explains that this difference in growth trajectories is a major reason why investors are leaning toward smaller companies. “Large-cap companies are already mature and well-established. In contrast, small and mid-cap firms have greater room to expand, innovate, and capture market share, leading to higher earnings growth,” he says.

The shift in preference is also fueled by strong retail participation in equity markets over the past few years. Many first-time investors are looking beyond safe options and are open to taking calculated risks for better returns. With digital platforms making fund investments more accessible, awareness around small and mid-cap funds has grown significantly.

However, financial experts caution that higher potential returns also come with higher risks. Small and mid-cap funds tend to be more volatile and sensitive to market fluctuations compared to large-cap peers. Investors are advised to adopt a long-term perspective and align such investments with their risk appetite before committing significant capital.

In the current market landscape, this growing appetite for small and mid-cap funds reflects the confidence of retail investors in India’s growth story. For those willing to ride out the short-term volatility, these funds offer an opportunity to participate in the expansion of India’s next generation of market leaders.