How to Evaluate Mutual Fund Consistency Beyond Returns
September-202612:00 PM
Shift in Top SIP Categories: Why Disciplined Asset Allocation Beats Chasing Past Returns
The composition of India's Systematic Investment Plan (SIP) inflows has experienced a structural realignment over the five-year period from March 2021 to March 2026. According to data from the Association of Mutual Funds in India (AMFI), Mid Cap funds moved ahead of Large Cap funds to become the largest single SIP category, Small Cap allocations expanded meaningfully, and thematic inflows reached multi-year highs.
5-Year Inflow Evolution: March 2021 vs. March 2026
- Mid Cap Funds: Moved to #1 largest SIP category.
- Small Cap Funds: Rose from 8.3% to 12.1% share of SIP assets.
- Sectoral & Thematic: Expanded from 5.8% to 8.7% share of SIP assets.
- Hybrid Funds: Exited the top 10 SIP category rankings.
When broader market flows undergo such significant realignment, long-term investors must step back from the market noise: Does this shift reflect an objective-driven evolution in portfolio construction, or is it the result of recency bias chasing past returns?
The 5-Year Inflow Evolution: What the Data Shows
The movement of capital across equity categories underscores how market performance directly influences investor behavior:
Evaluating the Mid Cap and Small Cap Ascent
The Mid Cap Shift: Flow Momentum vs. Planned Asset Allocation
The movement of capital into Mid Cap funds was driven by a combination of accelerating net inflows and strong underlying index performance:
While mid-sized enterprises offer strong growth potential, the reason behind an allocation determines its long-term stability. Allocating to mid caps as part of a pre-determined asset allocation process creates lasting wealth. Conversely, increasing exposure simply because the segment outperformed over the trailing cycle exposes capital to sharp consolidation when market leadership rotates.
Small Cap Allocation: Balancing Long-Term Growth with Risk
Small Cap SIP assets expanded from 8.3% to 12.1% of total SIP assets, supported by a 14.5% five-year annualized return from the Nifty Smallcap 250. Net inflows into the category reached ₹51,800 crore in FY26.
Small Cap Allocation Guardrails
- Balanced Approach: 20% to 25% of equity allocation (Data-backed).
- Recency Bias: >60% to 70% in small caps (Heightened drawdown risk).
Small caps play an effective role in long-term wealth creation. However, an equity portfolio with 60% to 70% concentrated in small caps indicates that recent performance is dictating decisions rather than disciplined allocation. Maintaining small cap exposure around 20% to 25% of the equity allocation captures high growth while insulating the overall corpus from cyclical volatility.
Flexi Cap vs. Multi Cap: Can Both Coexist in a Portfolio?
Flexi Cap funds retained a steady 12.8% share of SIP assets in March 2026, while Multi Cap funds entered the top 10 with a 4.1% share. Both categories can effectively coexist within a mature portfolio because their structural mandates are complementary:
The Risk of Cyclical Concentration: Sectoral & Thematic Funds
Sectoral and thematic funds accounted for nearly 35% of total equity inflows in FY25 (approx. ₹1.46 lakh crore), driven by sharp run-ups in defense, auto, PSU banks, and infrastructure.
Thematic funds are cyclical. Allocating to a specific sector near the peak of its cycle often leads to multi-year underperformance. An uncomplicated, resilient approach relies on diversified equity categories, which capture sectoral momentum automatically without exposing capital to single-sector vulnerability.
The Decline of Hybrid Funds: Greater Portfolio-Level Control
The exit of Balanced and Aggressive Hybrid funds from the top 10 SIP rankings reflects greater investor maturity. Rather than relying on a single scheme to balance equity and fixed-income assets, investors are taking direct control at the portfolio level.
Separating equity growth buckets from debt liquidity buckets provides precise control over asset allocation, liquidity timing, and tax efficiency.
The 3-Point Mutual Fund Portfolio Review Framework
Instead of adjusting a portfolio to mirror current category popularity, assess your holdings against these objective parameters:
- Target Market-Cap Distribution: Maintain approximately 50%–55% in Large Caps, 20%–25% in Mid Caps, and the remainder in Small Caps.
- Eliminate Holding Overlap: Review whether holding multiple funds has created unintended single-stock or sector concentration.
- Match Allocation to Goal Horizon: Align equity volatility with the specific tenure of your family's wealth goals, keeping immediate cash requirements in low-volatility liquidity buckets.
Expert Perspective
Adil Chacko
Executive Director and Unit Head, Delhi, at Anand Rathi Wealth Limited.
Adil Chacko focuses on objective-driven wealth processes, long-term asset allocation frameworks, and uncomplicated portfolio structuring for high-net-worth families across India.
"The top SIP categories tell us where money is being allocated. They do not determine how an individual portfolio should be constructed."
About Anand Rathi Wealth
This article is published by Anand Rathi Wealth Limited (ARWL), an NSE500-listed wealth firm established in 2002. ARWL works with 13,941 client families across India and abroad, managing assets of ₹1,06,300 crores across 18+ cities in India, alongside a dedicated international presence in Dubai and the UK.
ARWL operates as a CFO for personal wealth, bringing objective-driven portfolio construction, an uncomplicated process, and a long-term perspective that prioritises consistency of outcomes over short-term performance.
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Disclaimer
This article is for informational and educational purposes only. The fund and scheme names used in this article are illustrative examples for explaining diversification and overlap. They should not be treated as investment action, product endorsement, or a promise of future performance.
