Summary of this article
Investors bought mid and small-cap funds despite September market drops.
Overall open-ended equity mutual fund inflows jumped by 31.3 percent.
Record SIP contributions of Rs 32,490 crore cushioned market volatility.
Domestic retail investors continued to remain invested in the domestic market in September 2026. Rather than retreating due to rising volatility, investors deployed capital into mid-cap and small-cap schemes, even as the returns from these segments of the market turned negative in September.
According to data released by the Association of Mutual Funds in India (Amfi), the overall net inflows into open-ended equity schemes jumped 31.30 per cent month-on-month (m-o-m), increasing from Rs 29,328.62 crore in August 2026 to Rs 38,506.55 crore in September. The bulk of these inflows came from the mid-cap and small-cap segments, even as small-cap stocks and mid-cap benchmarks declined.
During September, the benchmark Nifty Midcap 150 index dropped by 5.95 per cent, while the Nifty Smallcap 250 index contracted by 3.07 per cent. Typically, a decline of this magnitude tends to trigger investor anxiety and a subsequent slowdown in fresh mutual fund allocations.
However, according to Amfi data, net inflows into the small-cap fund category expanded by 13.36 per cent, rising from Rs 7,973.33 crore in August to Rs 9,038.57 crore in September. Mid-cap schemes saw a similar increase in inflows, with monthly net inflows rising 12.09 per cent from Rs 6,989.40 crore to Rs 7,834.84 crore over the exact same period.
Investors continued to remain invested even as their existing portfolio values shrank. The market drawdown dragged the total closing net assets under management (AuM) for small-cap funds down from Rs 4,65,861.99 crore in August to Rs 4,56,851.67 crore in September. Similarly, mid-cap fund AUM contracted from Rs 5,43,242.52 crore to Rs 5,32,197.85 crore.
Defying Historical Behaviour
The investing behaviour within the small-cap and mid-cap space hints at a structural shift in how domestic retail participants deal with market volatility. Retail money in domestic equities has been historically criticised for being highly cyclical, meaning investors often enter near market peaks and exited in a panic during corrections.
Data released by Amfi for the month of September shows that retail participants are increasingly deploying capital, even as broader indices tumble, actively treating the lower index levels as an entry window.
The expansion in total investor participation further reinforces this shift. Active folios in small-cap schemes crossed the 30 million mark during the month, expanding from 29.70 million accounts in August to 30.30 million accounts by the end of September. Mid-cap folios also saw steady additions, growing from 26.30 million to 26.70 million.
The SIP Cushion
The inflows into the mid-cap and small-cap schemes came at a time when monthly systematic investment plan (SIP) contributions hit an all-time high of Rs 32,490 crore, surpassing the previous record of Rs 32,297 crore hit earlier in August, 2026. The pipeline of recurring capital is likely to have acted as a shock absorber against benchmark volatility, as investors committed to long-term, disciplined allocations rather than relying on reactive lump-sum bets.
