Mutual fund inflows into equity schemes fell sharply in August, as investors adopted a cautious approach amid global macroeconomic uncertainty and market volatility triggered by trade-related concerns. According to data released by the Association of Mutual Funds in India (AMFI) on Wednesday, total inflows into equity funds declined by 22 per cent to Rs 33,430 crore in August from Rs 42,702 crore in July.
Despite the slowdown, inflows remained positive for the 54th consecutive month, underscoring sustained investor interest in equities, though tempered by a more cautious stance. The decline reflects global factors rather than domestic economic weakness, according to market experts.
Segment-wise Flows Show Mixed Trends
Among equity categories, small-cap funds faced a sharp 23 per cent drop in inflows, which fell to Rs 4,992 crore in August from Rs 6,484 crore in July, as investors grappled with valuation concerns and heightened volatility. In contrast, mid-cap schemes demonstrated resilience, with inflows rising slightly to Rs 5,330 crore from Rs 5,182 crore in the previous month. Large-cap funds also recorded a modest improvement, attracting Rs 2,834 crore in August compared to Rs 2,125 crore in July.
Mid and flexi-cap categories were singled out as holding strong inflows despite market uncertainty. Mr Ankur Punj, Managing Director and Business Head, Equirus Wealth, commented, “Small Cap Fund inflows dropped by 23 per cent due to volatility and valuation concerns whereas Mid and Flexi Cap held strong. Healthy SIP inflows reflect confidence that retail investors have in markets and this will continue to drive the markets with SIPs contributing 20 per cent to industry AUM.”
Debt Funds See Outflows Amid Market Correction
Debt mutual funds, often considered safer investment vehicles, saw an outflow of Rs 7,979 crore in August, reversing the inflow of Rs 1.06 lakh crore recorded in July. Multi-asset allocation funds similarly experienced a sharp decline, with inflows falling to Rs 3,527 crore from Rs 6,197 crore. Arbitrage funds, however, remained relatively stable with Rs 6,666 crore in inflows.
The pace of new fund offers (NFOs) also slowed, with 23 new launches raising Rs 2,859 crore in August, compared to higher activity in the preceding month. These offerings included two thematic funds, 11 index funds and six exchange-traded funds (ETFs).
Industry Assets Slightly Down, SIPs Hold Ground
The industry’s total assets under management (AUM) saw a slight decline, slipping to Rs 75.2 lakh crore at the end of August from Rs 75.36 lakh crore in July. Systematic Investment Plans (SIPs), a key retail participation tool, remained largely unchanged with contributions of Rs 28,265 crore in August, slightly lower than Rs 28,464 crore in July. SIP accounts stood at 8.99 crores, marking a small decline.
Mr Akhil Chaturvedi, Executive Director and Chief Business Officer, Motilal Oswal Asset Management Company, noted, “The lower impact of new flow viz previous month roughly Rs 9,000 Cr. is to the extent of NFOs which were higher in July than August. Rest the flow momentum is steady and healthy. Broadly, Indian investors continue to add equities to their allocation despite global headwinds and FII selling, and this is very positive for the markets.”
Expert Opinions: Caution Amid Confidence
While SIPs offer comfort to markets, concerns remain. Mr Viraj Gandhi, CEO, Samco Mutual Fund, said, “Even though the market has rallied 2 to 3 per cent over the last 30 days, we have seen a slowdown in the quarter-on-quarter flows for mutual fund schemes. Sectoral and thematic initiatives were the main deterrent, with a sharp decline of 59 per cent Q-o-Q.”
Mr Punj pointed out that upcoming policy reforms, such as GST rationalisation and tax incentives, could support corporate earnings and investor sentiment in the medium term. “With GST reforms that the Government has announced, we will see strong domestic consumption driving up corporate earnings. GST measures coupled with income tax reduction and RBI’s liquidity measures will drive the market flows upwards.”
August’s data reflects a broader trend where investors are balancing the need for long-term equity exposure with short-term caution in response to global uncertainties. While small-cap funds struggled with valuation fears, mid and flexi-cap schemes stood out as preferred choices. SIPs, despite a minor dip, continue to be the backbone of retail participation, contributing significantly to AUM and market stability.
As policymakers introduce reforms to bolster consumption and liquidity, experts remain cautiously optimistic about sustained inflows, albeit at a moderated pace. The coming months will reveal whether investor sentiment strengthens as macroeconomic pressures ease, or if volatility continues to cast a shadow on inflows.