Small-cap funds attracted a record ₹7,970 crore in August, while mid-cap funds received a record ₹6,990 crore. Large-cap funds, which invest in the biggest companies, recorded outflows for a second consecutive month — the first such stretch since December 2023.
The divergence suggests investors are not simply pulling money out of stocks. Instead, they appear to be shifting where they put their equity money, moving from larger companies towards smaller and mid-sized ones, Elara Capital said.
The shift is also visible in the number of investor accounts, or folios. Small-cap funds recorded their fastest pace of new folio additions since July 2025, while mid-cap funds also saw their fastest pace since then, although the increase was slower than in small caps. Large-cap funds, meanwhile, are seeing a net decline in investor accounts.
Small- and mid-cap funds now account for around 50%-55% of total inflows into actively managed equity funds, a level last seen in 2024, according to the report.
Elara Capital said the current shift differs from the pattern seen in 2023 because large-cap funds are now losing flows at the same time that small- and mid-cap funds are seeing inflows accelerate.
Much of that money is also concentrated in a handful of schemes. Since 2024, the top five mid-cap funds have accounted for nearly 74% of all mid-cap inflows, while the top five small-cap funds have captured around 60%, the report said.
But the strong headline returns of these funds may not reflect what investors themselves have actually earned.
Elara Capital compared the returns shown by a fund’s net asset value, or NAV, with returns adjusted for the timing and size of investors’ actual investments.
For the five mid-cap funds that attracted the most money since 2024, the median annualised NAV return was around 14% through August 2026. But the flow-adjusted return, which takes into account when investors put their money in, was only around 4%, a gap of about 9 percentage points.
The difference highlights a familiar problem for investors: buying more after a fund has already performed strongly can leave their actual returns well below the fund’s headline return. In effect, investors may be putting more money to work at higher prices.
Small-cap funds showed a similar pattern. Their flow-adjusted annualised return since January 2024 was 4.4% as of August 31, compared with a median NAV-based return of 9.5%, according to Elara Capital.
The continued flow of domestic money into small- and mid-cap funds could support their performance in the near term, Elara Capital said. But the report also flagged high valuations, record inflows and falling allocations to large-cap funds as signs that the rally in smaller stocks is becoming increasingly dependent on domestic investors continuing to favour the segment.