Large-Cap Funds Raise Mid-Cap Exposure To Four-Year High

Large-cap mutual funds increased their allocation to mid-cap stocks to 9.2% of assets under management in May 2026, the highest level since 2022, while reducing exposure to large-cap shares, according to data compiled by Elara Capital.

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The brokerage’s analysis showed that large-cap schemes held 84.3% of their assets in large-cap stocks in May, compared with 84.9% a year ago. Mid-cap exposure rose from 7.5% during the same period, indicating a gradual shift in portfolio positioning.

The change comes as investor preference for smaller companies continues to strengthen. Elara Capital data showed that assets under management in mid-cap funds have risen to 120% of large-cap fund assets, the highest level on record. In May 2024, mid-cap AUM crossed the size of large-cap AUM. Small-cap funds have also narrowed the gap with their AUM at 98% of large-cap fund assets.

Majority Of Schemes Increased Mid-Cap Holdings

Data from Anand Rathi Wealth showed that 20 out of 33 large-cap schemes raised their exposure to mid-cap stocks over the past year. Eleven schemes simultaneously reduced their allocation to large-cap shares.
HDFC Large Cap Fund recorded the biggest change, increasing mid-cap exposure by 8.46 percentage points while lowering large-cap holdings by 7.44 percentage points. Sundaram Large Cap Fund raised its mid-cap allocation by 6.63 percentage points, while Aditya Birla Sun Life Large Cap Fund increased exposure by 5.98 percentage points.

Shweta Rajani, Head of Mutual Funds at Anand Rathi Wealth, told Moneycontrol that large-cap funds are not designed to hold only large-cap stocks and that selective exposure to mid-caps allows fund managers to pursue additional returns through active portfolio management.

Reclassification Exercise In Focus

Fund managers are also preparing for the semi-annual market capitalisation review conducted by AMFI. The revised classification of large-, mid- and small-cap companies is released at the end of June, after which schemes rebalance portfolios over the following months.

Rajani told Moneycontrol that some managers may begin adjusting allocations ahead of the changes if they expect companies to move between categories.

Risk Metrics Remain Stable

Analysis by Anand Rathi Wealth indicated that the increased exposure to mid-cap stocks led to a rise in three-year beta from 0.42 to 0.50, while the three-year standard deviation moved up to 14.13 from 13.41. Over a five-year period, beta remained unchanged at 0.49 and standard deviation eased to 13.55 from 13.82.

Large-cap funds have continued to outperform benchmark indices over one, three and five years, according to the analysis, suggesting that the additional mid-cap allocation has not materially altered the overall risk profile of the category.