The recent turbulence in small and midcap stocks has sparked debates about whether redemption pressure and halted SIPs (Systematic Investment Plans) are to blame. However, a closer look at the latest AMFI data suggests otherwise. Industry experts affirm that inflows remain stable, and investors are still actively participating in the market.
Here are the four crucial insights from the January Mutual Fund data that paint a clearer picture of where the market stands and where it might be headed:
1. Inflows into Mid and Small Cap Funds Remain Strong
Contrary to concerns of panic withdrawals, inflows into mid and small-cap funds actually increased in January. Small-cap funds saw an inflow of ₹5,721 crore, up from ₹4,688 crore in December. Midcap funds also witnessed a marginal rise, collecting ₹5,148 crore compared to ₹5,093 crore in December.
Akhil Chaturvedi, Executive Director & Chief Business Officer at Motilal Oswal AMC, reassured that investor sentiment remains steady. Even initial data from February suggests that inflows continue at similar levels. The absence of panic selling reflects confidence in long-term wealth creation through mutual funds.
2. SIP Registrations and Contributions Hold Steady
Despite market volatility, SIPs have continued to show resilience. The data reveals that 56.18 lakh new SIP accounts were registered in January, with total SIP assets under management (AUM) standing at ₹13.19 lakh crore.
Monthly SIP inflows remained stable at ₹26,400 crore, only slightly lower than December's ₹26,459 crore. Manish Mehta, National Head of Sales & Marketing at Kotak Mahindra AMC, dismissed the notion that halted SIPs triggered market corrections, stating, “The SIP inflows are robust, and nearly ₹6,000 crore continues to flow into midcap and small-cap funds.”
3. No Signs of Panic Among Investors
One of the strongest indications that mutual fund investors remain calm is the steady number of SIP accounts, which stood at 10.26 crore in January. Industry experts affirm that there has been no mass exodus from small and midcap funds.
Chaturvedi pointed out, “Month-on-month SIP numbers are consistent, disproving the theory that halted SIPs caused the market downturn. The selling in mid and small caps isn’t coming from mutual funds.” This suggests that other market forces, possibly institutional or HNI (High Net-worth Individual) investors, could be driving the volatility.
4. Mid and Small Cap Funds Are Adopting a Cautious Approach
While inflows remain steady, fund managers acknowledge that valuations in the mid and small-cap segment have been stretched. The recent market correction has helped ease valuations, but some stocks remain expensive.
Motilal Oswal AMC has taken a measured stance, maintaining some cash positions in their mid and small-cap funds. Chaturvedi explained, “We are selectively looking for opportunities and expect better entry points in the next 1-3 months. In the short term, large-cap and flexicap funds may be safer bets, but in the long run, India remains a midcap growth story.”
Will Small- and Mid-Cap Stocks Recover?
A full recovery will happen, but may take some time, analysts say. Investors are advised to exercise caution, assess the quality of their holdings and consider diversifying their portfolios.
“Do not fall for the fear-mongering 10-day debates,” Radhika Gupta, CEO of Edelweiss Mutual Fund, wrote on social media platform X.
Gupta underlined the need for a balanced approach to both mid- and small-cap stocks. Even a typical flexi-cap fund has about 30% of its investment in this category. The point is to make money, and it is essential to stay invested in SIPs for the long term, ideally 10 years or more, she said.
Is the Market Still Under Pressure?
The market, which has fallen about 3% since January 1 this year, is under pressure as foreign investors have pulled out ₹1,00,000 crore since January 2025, attracted by US bond yields at 4.49%, and a strong dollar.
Final Thoughts: Time Horizon Matters
With concerns about SIP performance amid recent volatility, newer investors, particularly those with a short investment horizon, are seeking clarity. Manish Mehta emphasized the importance of patience: “Short-term volatility is natural, but long-term SIP investments have consistently delivered strong returns compared to other asset classes.”
While market corrections can be unsettling, the data suggests that investor discipline remains intact, and mutual funds continue to play a critical role in long-term wealth creation. The key takeaway? Stay invested, focus on asset allocation, and align investments with your financial goals
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