Large-cap funds see fresh inflows as valuations stay attractive, say experts
Large-cap mutual funds topped the equity category in June 2025 with net inflows of ₹1,694 crore, marking a 35% rise from about ₹1,250 crore in May. The steady increase shows investors are moving money into large-caps for relative safety, as valuations in mid- and small-cap segments remain high.
Between April 2024 and March 2025, assets under management (AUM) in large-cap funds grew 12.1%, while the number of folios rose 15.4%.
Performance, however, has been mixed.
Gurmeet Singh Chawla, Director at Master Capital Services, said large-cap funds delivered about 3% in the past year, just behind the benchmark’s 3.5%. Over three years, though, they have slightly outperformed, posting a CAGR of 18%–19%, compared to the benchmark’s 17%–18%.
Mahesh Patil, Chief Investment Officer at ABSL AMC, said large-cap funds have staged a comeback. “Over the last three years, active large-cap funds beat the benchmark by around 1%–1.3%. The best-performing funds have outpaced by 200–300 basis points,” he said.
This marks a turnaround after underperformance between 2018 and 2021, when a few heavyweight stocks drove index returns and made it tough for active funds to catch up.
Patil added, “The broad market rally and better stock picking beyond index heavyweights have helped.”
However, Jiral Mehta, Senior Research Analyst at FundsIndia, cautioned that consistent outperformance is harder now.
“Markets are becoming more efficient in the large-cap space. Given the high overlap with the index, increasing institutionalisation in the large-cap segment and expense ratio differential, the active large cap funds are finding it difficult to outperform the benchmark,” she said.
Still, experts agree fundamentals support large-caps now.
Mehta pointed out that market returns are in line with earnings growth, valuations are reasonable, and India is mid-cycle on earnings, with more room to grow in the next 3–5 years.
She added, “Near-term triggers like FII flows recovery, a consumption-driven budget and RBI’s frontloaded rate cuts add to the appeal.”
Patil echoed this view.
He said, “Large-caps offer valuation comfort and stability in a volatile global setting. Mid- and small-caps rallied ahead of fundamentals, widening the valuation gap. Investors rotated back to large-caps for earnings visibility and liquidity.”
In June 2025 alone, net inflows into large-cap funds stood at nearly ₹1,700 crore, up 75% year-on-year, according to AMFI data cited by Patil. Year-to-date inflows crossed ₹14,000 crore.
Systematic Investment Plan (SIP) flows remain steady too.
“Investors use SIPs in large-caps to average valuations over time and avoid timing markets,” Patil said.
On rebalancing, Mehta advised caution for investors chasing high returns in smaller stocks.
“Stay underweight small-caps now due to high valuations and past returns. Rebalance to your original allocation — keep small-caps within 20% of your equity portfolio,” she said.
Patil added that shifting some gains to large-caps or diversified flexi-cap funds can restore balance and reduce risk.
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