Do not disproportionately raise exposure to small, mid-cap stocks

Investors who wish to participate in new growth stories can invest in mid and small cap funds but these funds are likely to give lower returns in coming months

- SACHIN KUMAR

WITH the stock market rallying to new highs in recent months, mutual funds have seen record inflows of investors' money. Within the mutual fund industry, small cap mutual fund schemes have emerged as star performers attracting record funds from investors in the past few months.

Net inflows into small cap equity mutual funds touched a record high of ₹5,472 crore in June, according to the Association of Mutual Funds in India (AMFI) data. In July, the net inflows in small cap funds reached ₹4,171 crore. Investors have poured in ₹22,040 crore in small cap funds since January this year.

Showing a similar trend, mid cap mutual schemes have caught investors' attention. Mid cap equity mutual fund schemes garnered ₹1,749 crore in June and ₹1,623 crore in July. While inflows in small and midcap funds have swelled, the investors turned a blind eye to large cap funds and pulled out investment from these funds. The large cap equity mutual fund schemes witnessed ₹2,049 crore outflow in June and 1,880 crore in July.

Surge in small and mid cap

Investors' money is chasing high growth and profitability and small and mid cap companies have lived up to their expectations. Stock prices of small cap companies have risen sharply in the past few months which is visible in the outperformance of small cap index. While the BSE Sensex risen nearly 7% since January this year, the BSE SmallCap Index has surged 21% in the same duration. In the past four months (April-July), the BSE SmallCap Index has soared 28% while Sensex has risen 12.5%.