Systematic Investment Plan (SIP) returns for mid- and small-cap mutual funds have experienced a significant rebound, with average one-year returns now at 19.1 per cent for smallcap funds and 13.5 per cent for midcap funds, signalling a potential revival in retail mutual fund momentum.
Illustration: Dominic Xavier/Rediff
Key Points
- One-year SIP returns for smallcap and midcap funds have sharply rebounded, now averaging 19.1% and 13.5% respectively.
- This recovery is crucial for the retail-dominated smallcap and midcap categories, where a large portion of investments comes through SIPs.
- The mutual fund industry had seen a moderation in retail growth indicators, including declining monthly SIP inflows and more account closures than new registrations.
- Industry officials and distributors anticipate that improved market sentiment and performance recovery will boost investor interest, new registrations, and SIP inflows.
- Despite near-term market fluctuations, the long-term trajectory of retail participation in India’s mutual fund industry remains strong, supported by structural economic growth.
Stock price movements in the mid-and-smallcap space have worked out in favour of mutual fund (MF) systematic investment plan (SIP) investors.
The one-year SIP returns of smallcap and midcap funds, which were subdued or in the red until recently, have rebounded sharply over the past two and a half months.
Average one-year SIP returns now stand at 19.1 per cent for smallcap funds and 13.5 per cent for midcap funds, shows data from Value Research.
Significance of the Rebound
The rebound in SIP returns is significant for smallcap and midcap funds, as a large portion of investments into the two retail-dominated categories comes through SIPs.
The market recovery and the sharp improvement in SIP and lump-sum returns come at a crucial time for the MF industry, which has been witnessing a moderation in key retail growth indicators.
Monthly SIP inflows have declined for two consecutive months, falling from a record ₹32,087 crore in March to ₹30,954 crore in May.
At the same time, SIP account closures outpaced new registrations in March and April, leading to a net decline of about 113,000 active SIP accounts over the two-month period.
The slump in performance and the broad macroeconomic and geopolitical uncertainty had decelerated new investor additions to a 3-year low in April.
Industry Outlook and Expert Views
According to MF officials, the industry’s growth, especially those linked to retail investors, will pick up as the sentiments improve.
“An easing of global geopolitical friction and the subsequent recovery in the market are undoubtedly positive signals that reinforce investor sentiment.
“We certainly expect to see interest and momentum coming back into the market, which naturally reflects in positive movements across growth metrics, be it new investor additions, SIP registration numbers, or net inflows,” said Venkat Chalasani, chief executive officer (CEO), Association of Mutual Funds in India (Amfi).
MF distributors expect the performance recovery to boost investor interest.
“Improved midcap and smallcap SIP returns act as powerful performance proof points, which will naturally accelerate monthly SIP inflows and drive new investor registrations,” said Anup Bhaiya, founder, Money Honey Wealth Services.
Saugata Chatterjee, president and deputy CEO, Nippon India MF, said that while near-term market conditions and geopolitical developments can temporarily influence investor behaviour and flows, the long-term trajectory of retail participation remains firmly intact.
“The improving trend in retail participation — reflected in consistent SIP inflows, rising assets under management, expanding folio base, and strong SIP account additions — is closely linked to India’s structural growth trajectory.
“Gross domestic product (GDP) is expected to remain strong at around 6.6 per cent in the financial year 2026-27, supported by domestic consumption tailwinds and increasing financialisation,” he said.
