Large-cap funds see continued outflows; mid- and small-cap inflows rise: How returns compare over 1, 3, and 5 years

Large-cap mutual funds continued to see outflows in August 2026, even as mid-cap and small-cap funds attracted higher inflows.

According to AMFI data, large-cap funds saw an outflow of ₹1,147 crore in August, narrower than the ₹1,322 crore outflow in July. This marks a 13% reduction in the pace of outflows, but the category remained in the red after seeing ₹2,067 crore of inflows in June 2026.

Meanwhile, mid-cap funds attracted ₹6,989 crore in August, up 13% from ₹6,192 crore in July 2026. Small-cap funds saw inflows of ₹7,973 crore, a 3% increase from ₹7,768 crore in July.

The divergence raises a question for investors: Is it due to the weaker returns in the large-cap segment? A comparison of the Nifty 100, Nifty Midcap 150 and Nifty Smallcap 250 provides a clearer perspective.

Which segment delivered better returns?

The numbers show a clear gap between large-caps and their mid- and small-cap counterparts.

In the last one year, the Nifty 100 was down 3.73%, while the Nifty Midcap 150 and Nifty Smallcap 250 gained 6.54% and 7.85%, respectively.

The gap becomes more visible over three years. The Nifty 100 (large-cap) delivered 7.58%, compared with 14.29% for the mid-cap segment and 14.23% for the small-cap segment.

Over five years, the mid-cap segment gained 15.74%, more than twice the 6.90% return delivered by the large-cap segment.

What do fund category average returns tell?

Large-cap funds delivered average returns of -0.63% over one year, 9.79% over three years, and 8.80% over five years.

Mid-cap funds delivered returns of 8.54%, 14.59%, and 14.98% over one, three, and five years, respectively. Small-cap funds performed even better.

This means large-cap funds have lagged both mid- and small-caps over the years in terms of benchmark and category-average returns.

Are mid- and small-caps now better than large-cap funds?

Vikas Gupta, CEO & Strategist at OmniScience Capital, said the continued outflows from large-cap funds are disappointing, particularly because he believes the segment is the most fairly valued part of the market, with several undervalued securities, especially in the banking sector.

“Within large caps, what is probably not worth investing in is the oil & gas sector, given the long-term secular decline from EV adoption and the near-term increase in global crude oil prices,” he mentioned.

Gupta said the strong inflows into midcaps and smallcaps are concerning because the top companies in these segments, which form a significant part of their respective indexes, are trading at very high price-to-earnings (P/E) ratios. The high revenue and earnings growth rates of mid- and small-cap companies are a mix of secular growth and cyclical factors.

The cyclical upswings could draw investors into these segments, but they also carry the risk of an eventual de-rating when growth normalises, he added.

Disclaimer: This is purely for educational/informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.