Four equity mutual fund categories — large-cap, dividend yield, value, and ELSS funds — witnessed net outflows in July 2026, even as most delivered positive returns during the month.
While large-cap and value funds slipped into outflow territory after seeing inflows in June, dividend-yield and ELSS funds continued to see withdrawals.
What drove this trend, and should investors be concerned? Here’s what experts have to say on this.
Source: AMFI; Negative figures indicate net outflows, while positive figures indicate net inflows.
Jasmeet Singh, Executive Director, Anand Rathi Wealth, attributed the outflows across these large-cap-oriented categories to a shift towards broader market segments.
“It is mainly due to investors' shift towards broader segments such as mid- and small-caps as markets recovered and valuations became more reasonable following the recent corrections,” he noted. This also reflects a recurring recency bias, where investors favour segments that have performed well recently.
Aditya Agarwal, Co-Founder, Wealthy.in, also attributed the large-cap outflows to stronger investor preference for mid- and small-cap funds, while value/contra funds faced weaker near-term demand despite their long-term appeal.
“Dividend-yield funds saw limited appetite for defensive strategies, while ELSS outflows reflected post-tax-season redemptions and its three-year lock-in,” Agarwal added.
For ELSS, Singh pointed to the growing preference for the new tax regime, which reduces the relevance of Section 80C-linked investments. At the same time, existing investors continue to redeem units as their lock-in periods end, keeping outflows elevated.
Not necessarily. Large-cap funds delivered average returns of 2.4% in July 2026, up from 1.9% in June 2026. Dividend-yield funds improved to 1.9% from 1.1%, while value funds moderated to 1.4% in July from 1.9% in June, according to Singh.
“Fund flows and returns do not necessarily move together,” he noted. The stronger July returns in large-caps, despite outflows, suggest that investors were more likely driven by rebalancing towards mid- and small-caps than exiting because of poor performance.
Agarwal pointed out that value and dividend-yield funds delivered positive returns, while ELSS recorded category-average one-month returns of around 0.5%. This indicates that relative performance and investor preference played a larger role than negative returns.
Experts caution against treating one month of outflows as a signal to exit a category.
Agarwal explained that large-cap, value and dividend-yield funds serve different roles in a diversified portfolio, while ELSS is primarily a tax-saving product with a three-year lock-in.
“July’s data indicate that investors were reallocating towards segments that had delivered stronger recent performance, particularly mid- and small-cap funds,” he added.
