Largecap mutual funds see highest jump in monthly inflows by 33% to Rs 2,834 crore in August. Are investors chasing safety?

With large cap mutual funds witnessing a jump of 33% in monthly inflows, the highest among 11 equity sub-categories, market experts believe that the latest quarterly results (1QFY26) show a slowdown in overall revenue and profit growth, leading to increased caution among investors and the cautious investors may have preferred to increase large cap allocation.

“Following the post-COVID recovery, mid and small-cap stocks enjoyed a stellar four-year run, significantly outperforming large-cap stocks. This was driven by a surge in earnings growth and improved margins from a low base. However, the market has since changed,” Karthikraj Lakshmanan, Senior VP and Fund Manager, Equity at UTI AMC shared with ETMutualFunds.

Also Read | Smallcap mutual funds see 23% drop in monthly inflows to Rs 4,992 crore in Aug. Is investor sentiment shifting?

After peaking in September 2024, it corrected over the following six months before recovering and despite this recovery, one-year returns for large and mid-caps are close to zero, and small-caps are down by about 5%. Many individual mid and small-cap stocks have fallen even more sharply. The latest quarterly results (1QFY26) show a slowdown in overall revenue and profit growth, leading to increased caution among investors. Cautious investors may have preferred to increase large cap allocation,” Lakshmanan added.

Another expert shares a totally different aspect of large cap funds gaining investors interest. According to Nilesh D Naik, Head of Investment Products, Share.Market, given the increased volatility seen in the month of August, both gross inflows and redemptions have reduced significantly across most of the equity categories and the gross inflows in the large cap category have remained almost flat.

Naik shared two factors due to which large caps are gaining traction. Firstly, categories such as small cap and thematic were seeing higher lump sum flows in recent months which gets impacted during a volatile environment and secondly, the redemptions have reduced in the month of August across most equity categories including large cap as investors typically do not prefer redeeming in such market environment due to loss aversion bias.
The large cap mutual funds received an inflow of Rs 2,834 crore in August against Rs 2,125 crore in July registering a growth of more than 33% on monthly basis whereas the mid cap funds witnessed a growth of 3% and small cap funds saw a decline of 23% in the same period.
As the large cap funds have witnessed more growth than mid caps and small caps, are you wondering to invest in large cap funds? The experts recommend having exposure in large cap funds and the preferred mode should be staggering the investments.
According to Naik, irrespective of the market environment, it makes sense to have sizable exposure to the large cap segment either through large cap funds or flexi cap funds which also tends to have significantly higher exposure to large cap segment.

“Investors often over-allocate to small-cap funds after short-term outperformance, which can hurt when markets turn. SIPs are ideal for managing risk, but long-term investors with higher risk tolerance may also consider lump-sum or STP routes—parking money in safer funds and gradually shifting to large caps over 6–12 months amid current uncertainty,” he further added.

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Sharing a similar opinion, the fund manager from UTI AMC said that for over a year, the earnings growth difference between large, mid, and small-caps has been narrowing, while valuations for mid and small-caps have become expensive relative to their own historical average. “Our preference for large-cap stocks continues, as we expect FY26 to be another year of lower growth. The method of investing of SIP or lumpsum would depend on the investor’s income and wealth journey and there may not be a standard approach. However, in the current scenario, staggered investment approach towards equities may be well-suited,” he recommends

On an average, large cap funds gave a negative return of 0.41% in August. There were 33 funds in the category in the said time period, of which Nippon India Large Cap Fund gave the highest return of 0.37% in the same period.

Samco Large Cap Fund lost the most of around 1.95% in August, followed by ITI Large Cap Fund which lost 1.34% in the same time period.

Midcaps on an average gave similar returns as that offered by large caps whereas small caps gave a negative average return of 1.65% in August.

Based on the monthly performance by the large cap funds compared to mid caps and small caps, Lakshmanan from UTI Mutual Fund says that even the fund house model based on Nifty 50 has moved to increase equity allocation recommendations over the past few months.

From a valuation perspective, large caps currently appear more attractive than their counterparts – mid caps and small caps and over the long term, based on 5 year rolling returns, large-caps have historically provided comparable risk-adjusted returns to mid and small-caps, making them a suitable choice for investors prioritizing stability and risk management, he added.

Hinting at near term volatility, Naik said that, “I think from a long term perspective, large cap funds can be expected to deliver returns in line with the overall nominal economic growth. However, from a near term perspective, investors should be ready to see some volatility given the current valuations and earnings growth.”

Also Read | Mutual fund SIP stoppage ratio rises to 75% in August

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 September 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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