Small-Cap Funds See Slow, Cautious Investor Inflows

Small-cap mutual funds continue to attract investors who are willing to take higher risks for the chance of bigger long-term returns. These funds invest in smaller companies that have the potential to grow quickly. However, experts warn that small-cap investing requires patience, discipline, and a long-term perspective, as the market for these stocks tends to be more volatile compared to large-cap investments.

In January 2026, overall inflows into equity mutual funds slowed down. Investors put in ₹24,029 crore, about 14% lower than the ₹28,054 crore recorded in December 2025. This shows that investors are being cautious amid the current market fluctuations.

Within this overall trend, small-cap funds also saw a slowdown in net inflows. Investors added ₹2,942 crore to these funds in January, down from ₹3,824 crore in December 2025. Participation in the small-cap segment has been uneven over the past few months. From August to November 2025, net inflows were very low, ranging only between ₹3 crore and ₹5 crore.

This pattern suggests that investors are carefully selecting where to put their money in the small-cap space. While small-cap funds can offer higher returns, they also carry higher risks, so experts advise investing in them with a long-term strategy and the ability to handle market ups and downs.

The small-cap segment remains attractive for those who are prepared to stay invested for the long run, but short-term volatility continues to be a challenge for cautious investors.