Largecap mutual funds see over 50% decline in May inflows. Profit booking or shift in investor preference?
With largecap
mutual funds
seeing a drop of over 50% in monthly inflows during May 2025, an experts attribute the decline to profit-taking and a shift toward higher-yielding categories. Investors, they say, often chase recent outperformers rather than adhering to a disciplined, goal-based asset allocation strategy.
'The recent stronger returns in mid and small-cap funds may have induced many investors to reallocate in pursuit of higher gains, and their portfolios may have consequently been diverted from their original risk-return profiles,' Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance, shared with ETMutualFunds.
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Midcap and smallcap mutual funds witness decline in inflows. Are investors shifting focus?
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Another expert is of a similar opinion that this tactical shift is for higher growth by choosing riskier categories.
'The sharp decline suggests a tactical shift among investors toward higher-growth, though riskier, segments like mid and small caps. It also reflects some degree of
profit booking
, as large-cap indices had already seen a considerable run-up in the months prior,' said Himanshu Srivastava – Associate Director- Manager Research, Morningstar Investment Research India.
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In May,
large cap funds
received total inflows of Rs 1,250 crore against an inflow of Rs 2,671 crore in April, witnessing a decline of nearly 53% on a monthly basis. Yearly, these funds saw a growth of 89% from an inflow of Rs 663 crore in May 2024.
As the data reflects a change in investors' preference, the important thing to know is whether it is the correct time to invest in these funds amid the market volatility.
According to Minocha, large-cap funds stabilise a portfolio as these funds, even if the volatility for many can be considered low, fit those with medium-risk appetite, but the exact allocation must depend on the individual's goals, time horizon, and
risk
tolerance.
'Large-cap exposure is a must for every investor. Investors also may look at categories like flexi-cap and large & mid-cap funds, if duly aware of the fund manager's style, in terms of his allocation towards large caps and, to what extent there is participation in mid-cap and small-cap space for generating
alpha
,' Minocha further shared with ETMutualFunds.
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Nifty Bank hits 57,000. Is it time for mutual fund investors to bet on banking funds?
Largecap funds delivered an average return of 2.22% in May. Among the 33 funds in the category in the said period, Quant Large Cap Fund gave the highest return of around 4% in May, followed by ITI Large Cap Fund, which gave a 3.99% return in the same period.
HDFC Large Cap Fund gave the lowest positive return of around 0.95% in the mentioned period. Samco Large Cap Fund was the only fund to deliver negative returns in the mentioned period. The fund lost 0.20% in May.
On the other hand, midcap and smallcap funds gave an average return of 5.92% and 8.20% respectively in May, which was slightly higher than the one offered by largecap funds.
Midcap funds and smallcap funds received an inflow of Rs 2,808 crore and Rs 3,214 crore, respectively, in May. These funds witnessed a smaller decline on a monthly basis compared to largecap funds. The midcap and smallcap funds witnessed a decline of 15% and 20% respectively on a monthly basis.
As the largecap funds lag behind the mid and smallcap funds, Minocha mentions that as these funds invest in the top 100 market-cap companies technically provide long-term stability and resilience to any portfolio, which makes them relevant in the construction of a portfolio.
'Most active management large-cap funds have failed to beat their benchmarks in recent years. Hence, a passive alternative to consider would be Nifty 50, Nifty 100, or even a smart-beta approach (say equal weight or low-volatility indices) for a cost-effective and benchmark exposure,' Minocha shared the outlook of largecap funds with ETMutualFunds.
Also Read |
Parag Parikh Flexi Cap Fund adds Bharti Airtel and Nesco to its portfolio in May
Large-cap funds invest at least 80% of their assets in a large-cap company, which is ranked from 1st to 100th on the Indian stock exchanges in terms of market capitalisation, with the flexibility to invest the balance 20% in other companies as per the discretion of the fund manager.
If you are looking for recommendations, see:
Best large cap mutual funds to invest in June 2025
(
Disclaimer
: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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