Mid-cap and small-cap mutual funds have become popular choices for investors due to their strong performance in recent years. According to a report by ICRA Analytics citing data from the Association of Mutual Funds in India (AMFI), mid-cap funds have shown a five-year Compound Annual Growth Rate (CAGR) of 32.41%, with assets under management (AUM) increasing from Rs 1.13 lakh crore in February 2021 to Rs 4.62 lakh crore in February 2026. Small-cap funds have performed even better, with a CAGR of 39.93%, seeing AUM rise from Rs 67,764 crore to Rs 3.64 lakh crore during the same period.
The report highlights a positive trend in investor flows for these funds. In February 2026, mid-cap funds received net inflows of Rs 4,003 crore, a significant improvement from a marginal outflow of Rs 99 crore in February 2021. Similarly, small-cap funds experienced inflows of Rs 3,881 crore, a turnaround from outflows of Rs 452 crore five years ago.
Despite potential near-term volatility due to global uncertainties and foreign fund outflows, experts believe in the long-term growth prospects of these funds. Many schemes have delivered impressive compounded annual growth rates of over 20% for five years, showcasing their ability to create wealth over time. Experts recommend disciplined investing through Systematic Investment Plans (SIPs) and maintaining a longer investment horizon to navigate market fluctuations and leverage the power of compounding.
Retail investor confidence in mutual funds remains robust, with SIP inflows increasing by nearly 14.79% year-on-year to Rs 29,845 crore in February 2026, compared to Rs 25,999 crore in the same month last year. This sustained confidence reflects investors’ trust in mutual funds as a wealth-building tool.
