The report highlighted a notable disconnect between returns and investor flows across equity mutual funds during the month.
Micro-cap funds emerged as the best-performing category with an average return of 5.7% in May, while small-cap funds returned 3.4%. However, small-cap schemes attracted net inflows of only ₹2,229 crore. Mid-cap funds generated returns of 1.6% and received ₹3,898 crore.
In contrast, large-cap funds posted the weakest performance among cap-based categories, delivering returns of 1.5%, but attracted the highest inflows of ₹8,565 crore. Flexi-cap funds returned 2.1% and drew ₹5,350 crore.
According to Vallum Capital, the trend reflects the growing influence of systematic investment plans (SIPs), where monthly contributions continue to flow automatically into large-cap and flexi-cap funds irrespective of short-term performance.
Large-cap funds, with assets exceeding ₹10.5 lakh crore, therefore continue to accumulate capital even during periods when smaller categories outperform.
The broader mutual fund industry remained resilient in May.
Assets under management stood at ₹81.58 lakh crore as of May 31, while equity mutual funds recorded their 63rd consecutive month of net inflows. SIP contributions reached ₹30,954 crore during the month, up 16% from a year earlier, with active SIP accounts rising to 9.64 crore.
The report also showed investors selectively increasing exposure to banking-themed funds. Banking, financial services and insurance (BFSI) funds returned 5.5% and attracted ₹1,013 crore in inflows, while PSU bank and private bank funds together drew ₹765 crore.
In the factor investing segment, growth-oriented and contra funds continued to attract money, while defensive strategies such as quality and low-volatility funds witnessed outflows despite heightened global uncertainty and foreign investor selling.
Vallum Capital said May’s data suggests India’s mutual fund inflow engine remains strong, but also raises questions about whether investor allocations are increasingly being driven by automated savings flows rather than recent fund performance.
