SMID MF flows concentrate in select schemes as top funds corner bulk of inflows

Reports coming in for today mention that Mutual fund flows into mid- and smallcap schemes have become increasingly concentrated in a handful of funds, with the top five schemes accounting for nearly three-fourths of midcap inflows and 60 percent of smallcap inflows since 2024.

The concentration comes as flows into both categories have strengthened in recent months. Midcap funds received Rs 6,989 crore in August, up from Rs 6,192 crore in July and Rs 6,090 crore in June. Smallcap funds attracted Rs 7,973 crore in August, up from Rs 7,768 crore in July and Rs 5,602 crore in June.

August marked the highest monthly inflow into smallcap funds in the seven-month period from February to August, while midcap flows were additionally at their highest since April.

According to Elara Securities, Motilal Oswal Midcap Fund has attracted the highest inflows among midcap schemes at Rs 29,435 crore (since 2024), followed by HDFC Mid Cap Fund at Rs 24,347 crore and Nippon India Expansion Mid Cap Fund at Rs 16,714 crore. Kotak Mid Cap Fund and Edelweiss Mid Cap Fund ranked next, with inflows of Rs 12,629 crore and Rs 11,418 crore, respectively.

Together, the five schemes accounted for 74 percent of cumulative inflows into the midcap category since 2024, even though their share of total midcap assets is softer, the note stated.

The concentration is similarly visible in smallcaps. Bandhan Small Cap Fund led the category with Rs 24,839 crore of inflows since 2024, followed by Nippon India Small Cap Fund at Rs 20,947 crore and Quant Small Cap Fund at Rs 15,399 crore. SBI Small Cap Fund and Invesco India Smallcap Fund attracted Rs 10,071 crore and Rs 8,954 crore, respectively. The top five smallcap schemes together accounted for 60 percent of cumulative category inflows since 2024.

Top schemes attract disproportionate share of new money

Elara stated comparing a scheme's share of cumulative inflows with its current share of assets helps identify where incremental investor allocation has been strongest. A elevated flow share relative to AUM share indicates that a scheme is capturing a disproportionate share of new money.

The concentration of flows has been accompanied by firm expansion in the assets of several of these schemes. Motilal Oswal Midcap Fund had AUM of Rs 42,852 crore, while HDFC Mid Cap Fund had Rs 1.08 lakh crore and Nippon India Expansion Mid Cap Fund had Rs 52,271 crore. Among smallcap funds, Bandhan Small Cap Fund had AUM of Rs 34,176 crore, Nippon India Small Cap Fund Rs 82,580 crore and Quant Small Cap Fund Rs 35,557 crore.

The data additionally reveals that some schemes have attracted a much larger share of incremental flows than their current asset base would suggest. Motilal Oswal Midcap, for instance, accounted for 23 percent of midcap inflows since 2024 against an 8percent share of total midcap AUM.

Edelweiss Mid Cap had 9 percent of category inflows against 4 percent of AUM, while Invesco India Midcap accounted for 6 percent of inflows against 3 percent of AUM.

In smallcaps, Bandhan Small Cap accounted for 19 percent of inflows against an 8percent share of category AUM. Quant Small Cap had 12 percent of inflows against 8 percent of AUM, while Invesco India Smallcap accounted for 7percent of inflows against 4 percent of AUM.

The latest NAV data additionally reveals a wide variation in performance among the five midcap schemes that have attracted the most inflows. As of September 21, Motilal Oswal Midcap Fund had a one-year return of -2.1 percent, while HDFC Mid Cap Fund returned 4.8 percent, Nippon India Expansion Mid Cap Fund 5.5percent, Kotak Mid Cap Fund 3percent and Edelweiss Mid Cap Fund 4.8 percent. Over five years, their annualised returns ranged from 15.7 percent for Kotak Mid Cap Fund to 20.2 percent for Motilal Oswal Midcap Fund.

The broader equity-oriented fund category additionally saw a sharp rebound in August, with net inflows of Rs 29,329 crore, up from Rs 24,697 crore in July. Besides mid- and smallcap funds, large & midcap schemes received Rs 3,873 crore, multi-cap funds Rs 3,733 crore and flexicap funds Rs 5,059 crore during the month. Large-cap funds, that stated, saw an outflow of Rs 1,147 crore, marking a second consecutive month of withdrawals.

The firm flow momentum has not translated into equivalent investor returns, the Elara report noted. For the five midcap schemes that attracted the largest inflows since 2024, the median NAV-based CAGR was around 14 percent as of August, compared with a flow-adjusted cost-based return of around 4 percent.

For the five leading smallcap schemes, the median NAV-based CAGR was 9.5 percent, while the flow-adjusted return was 4.4 percent as of August 31. The difference, according to the report, reflects the timing of investor flows, with market participants adding larger amounts after the schemes had already delivered firm returns.