Small & Mid-Caps: Pause, Proceed or Pick Carefully?

The landscape of mutual fund investments has always been hard to navigate, with market experts frequently offering differing perspectives on optimal investment strategies. Amidst this, one question continues to dominate investor sentiment: is now the right time to invest in mutual funds?
If you've asked yourself that, a June 2025 report by AMFI might help answer it.

The report highlights that SIP inflows hit a record ₹27,269 crore, while equity mutual fund inflows rose 24% compared to the previous month. Gold ETFs, often considered a hedge, recorded net inflows of ₹2,080.9 crore, a significant rise from ₹292 crore in May.

Coinciding with these developments, the HDFC Mutual Fund presents Moneycontrol Mutual Fund Summit 2025, powered by Axis Mutual Fund, served as a platform where industry leaders engaged in a deep dive into the evolving dynamics of small- and mid-cap investments. These segments have sparked both investor optimism and caution in recent months.

While, small caps and mid-caps both categories have been giving investors notable returns, the prevailing question remains: is this a time to maintain allocations, or does the current environment call for a prudent pause?

"It's a very healthy pause, and I only hope it lasts longer," said Rahul Singh, CIO-Equities at Tata Mutual Fund. These pauses are what keep the bubbles of aggressive returns in a short span at bay.

Niket Shah, CIO at Motilal Oswal Mutual Fund, feels that "the next 12-18 months will require sharp stock picking.” He cited good small-cap earnings (15-16%), but stressed that liquidity and discipline would always be the keys to higher gains.

Anish Tawakley, Co-CIO Equity, ICICI Prudential AMC, rightly said, “There's still a lot of froth. Weak companies with aggressive accounting are priced too high & retail investors should not mistake momentum for quality."

As India aspires to achieve the $1 trillion AUM milestone by 2030, small and mid-cap funds are expected to play a significant role in this expansion. Their high-growth potential, coupled with rising retail participation from Tier 2 and Tier 3 markets, makes them not only attractive investment opportunities but also essential engines for long-term industry growth.

These were just some of the key takeaways from a wide-ranging dialogue at the Moneycontrol Mutual Fund Summit 2025, which also examined critical themes including Gen Z’s evolving investment preferences, fiduciary responsibility, the future of passive investing, and the regulatory landscape shaping the mutual fund industry. Click here to know more