The Mutual Fund Retreat: Navigating SIP Strategies Amid War-Related Market Anxiety
The ongoing US-Iran conflict has significantly impacted Indian equity markets, resulting in record outflows and a sharp decline in inflows. In May 2026, net equity inflows plummeted to Rs 22,908 crore, marking a 40% drop from Rs 38,440 crore in April. This decline represents the steepest month-on-month decrease since May 2023, as geopolitical tensions and market volatility weigh heavily on investor sentiment.
Decline in Equity Inflows
Experts attribute the downturn in equity inflows to rising crude oil prices, a weakening rupee, and periodic market corrections that have clouded short-term visibility. According to data from the Association of Mutual Funds in India (AMFI), lumpsum investments were particularly affected, as investors opted to wait for more favorable entry points during this volatile period. In contrast, Systematic Investment Plans (SIPs) tend to be less sentiment-driven and have shown resilience despite the market fluctuations.
Among various equity-oriented categories, flexi-cap funds attracted the highest inflows at Rs 5,176 crore, although this figure was nearly 49% lower than the previous month. Small-cap and mid-cap funds saw inflows of Rs 4,946 crore and Rs 4,385 crore, respectively, both reflecting declines of 33% and 28% compared to April. Additionally, gold exchange-traded funds (ETFs) experienced net outflows of Rs 725 crore in May, marking their first monthly outflow in 13 months. Debt mutual funds faced a sharp reversal, registering net outflows of Rs 96,949 crore during the month, compared to inflows of Rs 2.47 lakh crore in April.
SIP Contributions Remain Steady
Despite the overall decline in equity inflows, SIP contributions remained robust. Monthly SIP contributions were recorded at Rs 30,954 crore, only slightly down from Rs 31,115 crore in April. However, this marks the second consecutive month of declining SIP contributions, following a record high of Rs 32,087 crore in March. Experts advise SIP investors to maintain their discipline and avoid panic selling during periods of market volatility.
Dhirendra Kumar, CEO of Value Research, emphasizes the importance of sticking to SIPs, which automatically invest during market downturns. He notes that pausing contributions during turbulent times can lead to missed opportunities for purchasing units at lower prices. In May, 9.64 crore accounts continued their SIP contributions, demonstrating investor commitment despite a volatile market environment.
Market Opportunities Amid Challenges
Market experts suggest that current conditions may present opportunities for long-term investors. Prateek Nigudkar, Senior Fund Manager at Shriram AMC, points out that large-cap valuations appear more attractive compared to other segments. While mid- and small-cap stocks may still be trading at elevated levels, selective opportunities exist for those with a suitable risk appetite.
Chirag Muni, Executive Director at Anand Rathi Wealth Limited, notes that the Nifty 50 index is down approximately 8% from its peak, which could signal a buying opportunity for long-term investors. He recommends a diversified equity portfolio, suggesting an allocation of 50-55% in large caps, 20-25% in mid caps, and the remainder in small caps.
Foreign Investment Trends
Some analysts indicate that foreign outflows from Indian markets were already a trend prior to the US-Iran conflict. The war has exacerbated these outflows, as rising energy prices threaten India’s economic stability. A peace agreement could potentially restore some foreign investment, particularly if government measures help stabilize the rupee.
Challenges remain, including limited investment opportunities in AI-related sectors and elevated valuations that may hinder significant inflows. Dhirendra Kumar asserts that the core strength of SIPs lies in rupee-cost averaging, allowing investors to benefit from lower average purchase costs during market declines. Despite the recent moderation in inflows, SIP contributions have remained steady, indicating a commitment to long-term investment strategies.
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