Equity Mutual Fund Inflows Reach Lowest Level in 13 Months Amid Large and Mid-Cap Sector Trends
Equity mutual fund inflows in India have plummeted to a 13-month low, with net additions falling to Rs 19,013 crore in May, a significant 21.7% decrease from the previous month. This decline marks the fifth consecutive month of reduced inflows, as investors remain cautious amid high market valuations and global uncertainties. Despite this downturn, retail participation through systematic investment plans (SIPs) has reached new heights, indicating a continued commitment from individual investors.
Declining Equity Fund Inflows
The latest data from the Association of Mutual Funds in India (Amfi) reveals a concerning trend in equity mutual fund inflows. In May, net additions dropped to Rs 19,013 crore, a stark contrast to the previous monthโs figures. This decline reflects a broader trend of investor caution, driven by concerns over high valuations and ongoing global economic uncertainties. The sustained decrease in inflows over five months suggests that many investors are adopting a wait-and-see approach, opting to hold off on new investments in equity funds.
In contrast to the overall decline in equity fund inflows, retail participation through SIPs has shown resilience. SIP inflows reached a record Rs 26,688 crore in May, slightly surpassing April’s Rs 26,632 crore. The number of SIP accounts has also increased, now totaling nearly 8.6 crore, with approximately 9.1 crore active SIPs. However, the industry also saw the closure or maturation of 59 lakh accounts, indicating a level of turnover within the mutual fund ecosystem.
Performance of Mutual Fund Categories
While overall equity fund inflows have decreased, the performance of specific fund categories presents a mixed picture. Large-cap funds experienced a notable drop, attracting only Rs 1,250 crore in May compared to Rs 2,671 crore in April. Mid-cap and small-cap funds also saw declines, with inflows of Rs 2,808 crore and Rs 3,214 crore, respectively. In contrast, flexi-cap funds emerged as a preferred choice for investors, garnering the highest equity inflows of Rs 3,841 crore in May. This shift indicates a growing preference for flexible investment strategies amid market volatility.
Moreover, equity-linked saving schemes and value funds reported net outflows of Rs 678 crore and Rs 92 crore, respectively. The overall mutual fund industry, however, experienced an infusion of over Rs 29,000 crore in May, a stark contrast to the Rs 2.77 lakh crore seen in the previous month. This infusion was largely supported by positive market performance, with the Nifty 50 index gaining 1.7% in May, alongside significant rises in mid-cap and small-cap indices.
Debt Fund Dynamics and Institutional Investment
In a notable reversal, debt mutual funds faced substantial outflows of Rs 15,908 crore in May, following a remarkable inflow of Rs 2.2 lakh crore in April. This shift was primarily driven by redemptions in short-term categories, influenced by changing interest rate expectations and the Reserve Bank of India’s neutral stance. Despite the overall outflows in debt funds, corporate bond funds attracted Rs 11,980 crore, marking the highest inflow since March 2023. This surge reflects institutional investors’ pursuit of higher yields in AA+ and above-rated bonds, supported by favorable bank liquidity and shorter maturities.
Additionally, foreign portfolio investors made significant contributions to the equity market, purchasing $2.3 billion worth of Indian shares in May, the highest level since September 2024. Despite this influx, mutual funds held Rs 2.15 trillion in cash as of April, indicating a cautious approach to deploying capital in the current market environment.
Future Outlook for Mutual Fund Investments
The rise in SIP inflows and the growing number of contributing accounts underscore a steady commitment from retail investors, even amid market volatility. As digital adoption continues to expand and mutual funds reach beyond major urban centers, long-term participation appears stable. However, the ongoing market volatility, high valuations, and geopolitical risks are likely to create uneven inflow patterns in the near future. Investors are expected to remain cautious, balancing their portfolios while seeking opportunities in a fluctuating economic landscape.
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