Inflows into India's equity mutual funds declined in November, while investors continued to select small- and mid-cap funds in search of higher returns, according to data released on Friday by the Association of Mutual Funds in India (AMFI). According to the report, inflows fell 22.15% month on month to Rs 15,536 crore in November from Rs 19,957 crore in October. This is the 33rd consecutive month of net inflows. 

"Diwali festivities and bank holidays probably affected equity net flows in November," said Manish Mehta, head of sales, marketing and digital business at Kotak Mutual Fund. So far this year, mutual fund inflows into equity-oriented schemes have totaled Rs 1.45 trillion, propelling the benchmark indices Nifty 50 and BSE Sensex, as well as the more domestically focused small- and mid-caps, to new all-time highs. 

The Nifty 50 gained 5.52% in November, its best month since July 2022, on improved liquidity circumstances, reducing global rate fears, and robust macroeconomic data. Contributions to systematic investment plans (SIPs), in which investors make regular contributions into mutual funds, reached an all-time high of Rs 17,073 crore in November, with the number of SIP accounts increasing by 1.41 million to 74.41 million.

For the 14th consecutive month, small-cap funds accounted for the majority of investments at Rs 3,699 crore, over 12 times the inflows of Rs 307 crore into large-cap funds. Mid-caps received Rs 2,666 crore in inflows, compared to Rs 2,409 crore in October. Retail inflows boosted small- and mid-cap stocks by 12% and 10.4%, respectively, in November. 

Small- and mid-cap indexes have risen 48% and 40% this year, respectively, beating the benchmark Nifty 50 index's 15.5% increase. Given the recent surge and stretched valuations, investors should be careful about increasing allocations to small-cap stocks, according to two experts.