The net inflows into small-cap and mid-cap equity mutual funds declined marginally month-on-month in September 2023, according to AMFI data.
Data shows that the net inflow in small-cap funds in September was Rs 2678.47 crore compared to Rs 4264.82 crore in August. Net inflow into mid-cap funds was Rs 2000.88 crore in September compared to Rs 2512.34 crore in August.
The small and mid-cap segments have witnessed huge traction in the last year. However, according to experts, the September decline in net inflows in these popular equity fund categories could be attributed to various reasons.
“Small-cap flows did witness a decline month on month, which can be attributed to certain fund houses temporarily halting inflows, possibly due to concerns about rich valuations in the mid and small-cap space,” says Akhil Chaturvedi, Chief Business Officer, Motilal Oswal AMO Asset Managementsset Management Company.
Melvyn Santarita, Analyst – Manager Research, at Morningstar Investment Adviser India, says the quantum of net flows in both the small-cap and the midcap as a category saw a dip compared to the previous months. They were still among the highest recipients of net inflows in September with the midcap category receiving Rs 2000.8 crore and the small-cap category receiving Rs 2,678.4 crore.
“The dip in the net flows of these categories could be attributed to some bit of profit booking by investors coupled with concerns regarding inflated valuations in some of these segments,” says Melvyn.
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Should you invest in small and mid-cap funds?
As both the midcap and the small-cap indexes have seen a sharp rally over the last 6 months and 1 year, investors have also flocked to these categories with ever-increasing flows. Experts say that while both mid-cap and small-cap funds can give good returns, investors should be wary of the volatility in these segments and invest via SIP for a long duration.
“Investors should note that while both the midcap and the small-cap categories have the potential to deliver good returns, these categories inherently are volatile with sharp drawdown risks,” says Melvyn.
“Therefore, investors should have a long-term time horizon while investing in these categories. Opting to invest in these categories via the SIP route is a good way by which investors can ride the volatility whilst dollar cost averaging over a long period,’ she adds.
Disclaimer: Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.