Equity Fund Inflows Decline 26% in February Amid Market Correction

Investors Take a Cautious Approach as Market Volatility Hits Equity Mutual Fund Inflows

Equity mutual fund inflows in India witnessed a significant decline of 26% month-on-month, reaching ₹29,303.34 crore in February 2025, according to data released by the Association of Mutual Funds in India (AMFI) on March 12. The sharp drop in inflows came amid a deep correction in the Indian equity markets, as global uncertainties, weak corporate earnings, and sluggish economic conditions weighed on investor sentiment.

Despite the decline, net inflows into open-ended equity funds remained positive for the 48th consecutive month, underscoring sustained investor participation in the segment.

Market Turmoil and Investor Caution Drive Decline in Equity Fund Inflows

The significant dip in inflows comes at a time when the Indian stock market faced a sharp downturn.

• BSE Sensex plunged 5.55% in February, reflecting concerns over global economic conditions.
• Nifty 50 fell by 5.89%, marking one of its worst monthly performances in recent times.
• The downturn was attributed to global uncertainties, a slowdown in earnings growth, and concerns over economic recovery.

Equity fund inflows had already shown signs of weakening in January, declining by 3.6% month-on-month to ₹39,687.78 crore from December 2024 levels. However, the February decline of 26% marks the steepest monthly drop in inflows in nearly a year.

Segment-Wise Breakdown: Small-Cap and Mid-Cap Funds Take the Biggest Hit

Investor caution was particularly evident in small-cap and mid-cap funds, which saw the sharpest declines in inflows as concerns over market volatility and stretched valuations led to risk aversion.

• Small-cap funds: Net inflows declined 34.9% month-on-month to ₹3,722.46 crore, compared to January levels.
• Mid-cap funds: Net inflows fell 33.8% to ₹3,406.95 crore, reflecting investor apprehensions about the segment’s future performance.
• Large-cap funds: While also witnessing a decline, inflows fell by a relatively lower 6.4% to ₹2,866 crore, indicating continued preference for stability amid market uncertainty.

Only Focused Funds See Inflow Surge Amid Broad-Based Decline

Interestingly, focused funds were the only equity mutual fund category to witness an increase in inflows.

• Inflows into focused funds surged 64.4% to ₹1,287.72 crore, reflecting investor interest in a more targeted investment strategy during turbulent times.
• Other fund categories, including sectoral, thematic, and multi-cap funds, all reported a decline in net inflows.

Debt Mutual Funds See Net Outflows Amid Rising Interest Rate Uncertainty

On the fixed-income side, debt mutual funds witnessed net outflows of ₹6,525.56 crore in February, a stark reversal from January’s net inflow of ₹1.28 lakh crore.

• Ultra Short Duration Funds saw outflows of ₹4,281.02 crore, as investors opted for lower-risk assets.
• Money Market Funds also faced net selling of ₹3,275.97 crore, indicating investor hesitancy toward short-term debt instruments.
• Liquid Funds, however, recorded net inflows of ₹4,976.97 crore, as investors sought safe-haven assets amid market volatility.
• Corporate Bond Funds attracted net buying of ₹1,064.84 crore, reflecting some demand for high-quality fixed-income instruments.

Mutual Fund Industry AUM Declines Over 4% as Market Losses Mount

The overall impact of market volatility and mark-to-market losses was evident in the total assets under management (AUM) of the Indian mutual fund industry, which declined by 4.04% in February, falling to ₹64.53 lakh crore from ₹67.25 lakh crore in January.

The sharp decline in AUM highlights the challenges faced by fund managers in navigating a market environment dominated by global economic uncertainties, interest rate fluctuations, and investor risk aversion.