Retail Investors Chase High Returns Despite Valuation Concerns

Retail investors are increasingly allocating their funds into mid and smallcap mutual fund schemes, driven by the allure of high returns. This trend persists even as financial experts caution against the stretched valuations of these assets.

Record Inflows into Mid and Smallcap Schemes

According to the Association of Mutual Funds in India (AMFI), the first quarter of FY26 saw a staggering Rs 20,255 crore poured into mid and smallcap schemes, representing 30% of total equity inflows. Over the past year, these investments have reached Rs 90,075 crore, accounting for 23% of all equity flows.

Experts Advise Caution

Financial planners like Harshvardhan Roongta highlight the risks of chasing past performance, noting the high returns of mid and smallcap funds compared to large caps. Meanwhile, Dikshit Mittal of LIC Mutual Fund sees this as investors seeking growth in faster-expanding economic segments.

Valuation Premiums Raise Eyebrows

ICICI Prudential Mutual Fund points out that midcap and smallcap indices are trading at valuations significantly above historical averages. A Whiteoak Capital study underscores this, showing smallcaps at a 28% premium to long-term averages.

Wealth Managers Recommend a Balanced Approach

Vishal Dhawan of Plan Ahead Wealth Advisors suggests limiting exposure to mid and smallcap funds to 10-15% of an equity portfolio, advocating for staggered investments through SIPs and a long-term horizon.