The mutual fund landscape in India is evolving rapidly. Here are six key trends to monitor.
1. Decline in Large-Cap Funds’ Dominance: Over the past five years, the proportion of large-cap funds in total equity assets under management has steadily decreased, from 18.2% in March 2021 to 11.4% in March 2026. Although absolute assets grew from ₹1,78,324 crore to ₹3,66,045 crore, this expansion lagged behind the overall equity market, which more than tripled from ₹9,79,367 crore to ₹31,97,698 crore. Meanwhile, mid-cap and small-cap segments expanded more quickly. By March 2026, mid-cap assets exceeded large-cap for the first time, reaching 1.14 times their size, while small-cap neared parity at 0.91 times.
2. Growth and Adjustment in Sectoral and Thematic Funds: Assets in sectoral and thematic funds have expanded nearly fivefold, from ₹98,080 crore in March 2021 to ₹4,77,309 crore in March 2026, increasing their share of equity assets from 10.0% to 14.9%. Annual inflows varied, peaking at ₹1,46,656 crore in fiscal year 2025, representing 35.2% of equity inflows. This surge was driven by India’s capital expenditure cycle, public sector re-rating, and relaxed rules allowing multiple fund launches. However, fiscal year 2026 saw inflows drop to 8.6% amid underperformance in areas like defense, public sector units, and manufacturing due to high valuations and unmet earnings expectations, leading to redemptions.
3. Rise of Multi-Asset Allocation Funds: Multi-asset allocation funds have emerged as a major success in the hybrid category, with assets growing from ₹14,795 crore in March 2021 to ₹1,73,762 crore in March 2026, boosting their hybrid market share from 4.1% to 16.8%. Inflows accelerated, reaching ₹65,209 crore in fiscal year 2026. This expansion was propelled by strong performances in gold and silver, which rose significantly—gold increased 21% in 2024 and about 55% in 2025 in rupee terms. Regulatory requirements for diversified investments across equities, debt, and commodities provided built-in exposure to these metals, helping cushion returns during equity market downturns. Average returns of 17.4% in 2025 attracted investors, especially after changes in debt fund taxation eliminated indexation benefits.
4. Challenges for Overseas Fund of Funds: Assets in overseas fund of funds rose from ₹12,408 crore in March 2021 to ₹38,287 crore in March 2026, but growth was hampered by regulatory limits. In January 2022, restrictions were imposed after the industry exceeded a $7 billion cap on international investments, followed by a $1 billion limit on overseas ETFs in April 2024, halting new inflows. Inflows peaked at ₹10,674 crore in fiscal year 2022 but turned negative in subsequent years, with net outflows in fiscal years 2024 and 2025. Approximately 70 schemes targeting international markets were affected, limiting options for investors seeking global diversification.
(Note: Details for trends 5 and 6 were not available in the source material.)
