Small-cap funds saw reduced inflows in January 2026 amid market volatility, with investors favoring long-term SIPs and sector shifts toward tech and finance.

Small-cap mutual funds saw reduced inflows in January 2026, dropping to ₹2,942 crore from ₹3,824 crore the prior month, amid overall equity fund outflows and market volatility. Despite higher risk and annual volatility near 33%, some funds like Bandhan Small Cap are targeting undervalued internet and small-cap stocks, increasing stakes in firms like Paytm and Info Edge. Sector shifts favor financial services, technology, and utilities, while exposure to energy and metals declines. Experts recommend long-term, disciplined investing through SIPs, emphasizing small caps as satellite holdings within diversified portfolios due to their higher risk and return potential.