Small cap and mid cap funds, which have witnessed a steady surge in AUM (Assets under Management) over the last one year, are likely to hold investor interest in the medium to long term, said a report by ICRA. The surge, it added, is due to the value created in the entities backed by robust regulatory framework leading to better corporate governance practices and the government’s firm intent to push for an intrinsic growth in the country’s economy.
The net AUM of open-ended small cap schemes grew by 89 per cent at Rs 2.49 lakh crore as on February 29, 2024, up from Rs 1.32 lakh crore in February 2023. Net inflows into small-cap funds increased by 30 per cent at Rs 2922 crore in February 2024, as against Rs 2246 crore last year. The open-ended mid-cap schemes witnessed 61 per cent growth in net AUM as on February 29, 2024 at Rs 2.96 lakh crore, up from Rs 1.83 lakh crore last year while net inflows remained almost flat at Rs 1808 crore in February 2024 (Rs 1817 crore in Feb 2023).
Ashwini Kumar, Senior Vice President and Head Market Data, ICRA Analytics, said that investors are looking at balancing the risk and wherever there is value, money will chase. “So, while large cap will always remain the favourite of the market, investors will also look to add small and mid-cap companies to their portfolios which are intrinsically strong to add value to their portfolio.”
Interestingly, the small and mid-cap funds have outperformed the large cap on a 1-year, 3-year, 5-year and 10-year horizon, as on February 29, 2024, as per data compiled by ICRA Analytics. The returns generated by small-cap funds stood at 49.98 per cent, 29.15 per cent, 26.98 per cent and 22.75 per cent for a 1-year, 3-year, 5-year and 10-year period respectively and that for mid-cap stood at 47.74 per cent, 23.81 per cent, 22.83 per cent and 20.71 per cent for a similar time period. While the returns generated by large cap funds stood at 34.29 per cent, 16.10 per cent, 16.22 per cent, 14.77 per cent for a 1-year, 3-year, 5-year and 10-year period respectively.
“If we look from a macro perspective, if a country has to grow intrinsically strong, it cannot be superficial, it has to go deep. All the policies of the regulators and the government are aimed at this intrinsic growth. They are bringing in policies to strengthen smaller companies, putting in place the governance system, encouraging financial literacy which is leading to value creation in small and mid-cap companies. All these measures will help attract more retail investors who are now better equipped with information and research. Value investment in small and mid-cap will continue to happen,” Ashwini Kumar said.
The net AUM of the mutual fund industry has surged by over 38 per cent at Rs 54.54 lakh crore in February 2024, as compared with Rs 39.46 lakh crore in February last year, stated the report. Total inflows into equity-oriented schemes (open-ended) increased by nearly 71 per cent at Rs 26,866 crore in Feb 2024, up from Rs 15,686 crore same period last year.
The debt schemes (open-ended) have also witnessed a surge in inflows at Rs 63,809 crore in February this year as against a net outflow of Rs 13,815 crore in the same period last year. The mutual fund industry has witnessed a significant surge in retail participation, with individual investors accounting for over 60 per cent of the total AUM in January 2024. The increasing retail participation is also reflected in the SIP (Systematic Investment Plan) numbers with the total number of SIP accounts increasing to 8.20 crore in February 2024 and the total amount collected through SIP stood at Rs 19,187 crore.