This is especially true of smallcap funds, which have received huge inflows over the last few years. The AUM of smallcap funds is up 42 per cent annually over the last four years at Rs 4.37 trillion. On the other hand, largecap funds have seen AUM growth of 17 per cent annually to Rs 4.13 trillion. For the same period, the Nifty 50 is up 8 per cent and the Nifty Smallcap 150 index is up 19 per cent annually.
A recent Sebi study on mainboard IPOs revealed that domestic mutual funds act as patient, conservative anchor investors, showing far less eagerness to dump shares post-lock-in compared with foreign portfolio investors (FPIs).
Across 242 IPOs analysed between April 2022 and October 2025, mutual funds offloaded a modest weighted average of just 3 per cent of their anchor allotment after the 30-day lock-in, rising to 7 per cent by day 60 and 15 per cent at the 90-day mark. MFs maintained a zero-exit stance in over 100 IPOs past day 30.
Over a 365-day holding period across 167 IPOs, mutual funds exited a long-term total of only 38 per cent of their anchor allotment value, sharply undercutting FPIs, which unwound 60 per cent. For the 2025 listing cohort, overall anchor exits moderated to 15 per cent by day 90. MFs remained steady backers, usually selling under half their shares and almost never completely pulling out of major listings.
“When you have more liquidity than good investment opportunities, there is no reason for mutual funds to sell a winning trade. Whereas FPI, which has multiple other opportunities in global markets, could be utilising the IPOs for a quick trade,” said Ambareesh Baliga, an independent market analyst. He added, “If they sell a stock they need to find another worthwhile investment idea, so instead better to stay put with a good performing stock.”
Small and midcap funds are taking a long-term fundamental view on companies and not selling stocks even when prices go up. While some sceptics say that there are not many opportunities for smallcap fund managers but to buy bigger stakes in newly listed companies, the fact is that some of these companies have genuine growth potential.
“It is not the question of opportunities. In fact, they are taking long term bets where they have maximum conviction and that is how a small and mid cap fund manager is expected to behave. What we need to be mindful is that these companies account for small percentage of the overall portfolio of these funds,” says Gaurav Kulshreshtha, head of investments, Nexedge Capital.
A Business Standard study of data from Prime Infobase of 23 IPOs over the last eight months in 2026 shows smallcap funds that are anchor investors often stay with these companies for a longer period where the fundamentals are strong. This is in line with the study that Sebi published last week. Over the last eight months, the Nifty Smallcap 250 index is up 10 per cent and still going strong, while the Nifty 50 is down 7 per cent. Smallcap funds are betting with strong conviction on stocks they believe have fundamental strengths.
For instance, Nippon India Small Cap Fund, the largest in the category, has an AUM of Rs 80,000 crore. The fund is an anchor investor in Omnitech Engineering and holds a 7 per cent stake in the company, which accounts for 0.67 per cent of the fund’s portfolio. ICICI Flexicap holds 2 per cent and Edelweiss IPO Fund holds 0.30 per cent of the total equity of the company. Omnitech came out with an IPO in March 2026 and listed at Rs 202, and since then its shares are up 180 per cent. The company trades at Rs 573. The company has a market capitalisation of Rs 7,000 crore. While Omnitech is a recent bet that has generated high returns, the fund has 28 companies where it holds more than 5 per cent of the total equity, which account for 13 per cent of the total AUM.
Smallcap funds are taking concentrated bets on companies that have market capitalisation in the range of Rs 3,000-10,000 crore and where fundamentals are strong. Mutual funds have more concentrated holdings in Hexagon Nutrition (Rs 867 crore), Sai Parenterals (Rs 2,395 crore), Caliber Mining and Logistics (Rs 3,354 crore) and Leap India (Rs 7,337 crore).
“For large fund houses managing substantial AUMs, accumulating a meaningful position directly in the secondary market often causes severe price impact and pushes up acquisition costs. The anchor allocation guarantees institutional-sized volume at the offer price without market friction. Exiting early would forfeit a hard-won position that is expensive to rebuild later,” says Sunil Subramaniam, founder and CEO, Sense and Simplicity.