The Indian equity market (i.e. BSE Sensex) rebounded +5.8% in March 2025 after having plunged heavily in the previous months due to Trump 2.0’s protectionist policy measure.
As the market witnessed short-covering and recovered, the Assets Under Management (AUM) of equity mutual funds also reported a +7.5% increase to Rs 29.45 lakh crore, mainly supported by mark-to-market (MTM) gains.
The inflows into sub-categories of equity mutual funds persisted but were nonetheless noticeably less than in October 2024. In six months, the overall inflows have reduced by 40% shows the latest data released by the Association of Mutual Funds in India (AMFI).
For consecutive three months, the net inflows into equity mutual funds have fallen sequentially and today (as of March 2025) the net inflows into India’s equity mutual funds have dwindled to an 11-month low.
That being said, the monthly folio data is on the rise with equity-oriented funds taking the largest share—accounting for 69.9% of the total folios across types of mutual funds. In March 2025, 14.50 lakh new folios were added, denoting that not many retail investors were dissuaded by the market volatility caused by Trump’s tariff tantrums.
However, the table above reveals that not many investors are buying Large Cap Funds amid the volatility and uncertain market conditions. Even Large & Mid Cap Funds have been sort of overlooked.
Ideally, to add stability to the portfolio and limit the downside risk (as the Indian equity market corrects due to Trump’s tariff implications), investors should have considered adding Large Cap Funds to their portfolio.
On the contrary, in the endeavour to clock better returns, several investors have shown interest in Mid Cap Funds and Small Cap Funds, ignorant of the fact that these subcategories carry very high risk. Sadly, this trend was also observed even in the later part of CY2024 when the Indian equity market seemed overheated.
The Sector & Thematic Funds also attracted a large section of investors in the financial year 2024-25 (FY25). In fact, they attracted the highest net inflows among all equity categories in FY25 — thanks to the number of New Fund Offers (NFO) of sector & thematic funds being launched.
In March 2025 the net inflows into sector & thematic funds were just Rs 170 crore for mainly three reasons: 1) not many NFOs of these funds, 2) the underperformance of certain sectors, and 3) some investors wisely choosing to stay out or redeem from these funds recognising that impact of Trump tariffs on certain sectors (viz. auto, gems & jewellery, textile, chemical, petroleum products, medical devices, IT services and others having exposure the U.S. markets). Sector & Thematic Funds reported the highest redemptions to the tune of Rs 8,921 crore among all the equity-oriented funds in March 2025.
A section of investors have preferred to tap opportunities across the market capitalisation spectrum – large-caps, mid-caps, and small-caps – with a flexible approach. For this reason, barring the month of December 2024, Flexi Cap Funds have witnessed net inflows exceeding Rs 5,000 crore. In March 2025 Flexi Cap Funds attracted Rs 5,615 crore worth of net inflows, the highest among various equity fund subcategories.
In comparison, the Multi Fund Cap Funds which are mandated to have at least 25% exposure each in large-caps, mid-caps, and small-caps — regardless of the market conditions — witnessed lesser net inflows.
ELSS or Tax Saving Mutual Funds have also seen net inflows from individuals, particularly those in the high-income bracket who usually opt for the Old Tax Regime and to get two birds with one stone: tax saving and wealth creation. The net inflows into ELSS have been robust during the tax-saving season.
Among the equity-oriented hybrid funds, the Balance/Aggressive Hybrid Funds have seen inflows, but in March 2025 the net inflow was far less than in the previous months.
To tactically have exposure across asset classes some investors chose Dynamic Asset Allocation Funds (also known as Balanced Advantage Funds) and Multi Asset Allocation Funds. In March 2025, the Multi Asset Allocation Funds with its ability to invest across asset classes, viz. equity, debt and commodities such as gold and real estate etc. depending on the market conditions and outlook for each asset class, witnessed the highest flows within the hybrid category. The other hybrid funds such as Arbitrage, Conservative Hybrid and Equity Savings witnessed net outflows.
As regards the inflows into the Systematic Investment Plan (SIP), the contributions have been quite steady. In March 2025, the monthly SIP contributions grew by 34.5% year-on-year (y-o-y) to Rs 25,926 crore. The SIP assets have increased 24.6% touching over Rs 13.35 lakh crore as of the end of March 2025. The number of contributing SIP folios have touched 8.11 crore. SIPs now account for 20.31% of the overall mutual fund industry’s AUM as of March 2025.
According to AMFI, the consistent growth in SIP contributions, despite market fluctuations, underscores investors’ increasing confidence and dedication to long-term wealth accumulation, demonstrating their ability to weather market volatility and stay committed to their financial goals.
“The steady increase in SIP flows is a testament to the growing maturity of retail investors in understanding the importance of systematic and disciplined investing and trust of investors in mutual funds as a core part of their financial planning,” said Mr Venkat N. Chalasani, the CEO of AMFI.
Having said that, in the last three months (January 2025, February and March) the number of SIP the number of SIPs discontinued or those whose tenure has been completed, exceeded the number of new SIPs registered.
What Should Investors Do?
Avoid chasing past returns of Small Cap Funds, Mid Cap Funds, Sectoral & Thematic funds, or any scheme for that matter. Keep in mind that past returns are in no way indicative of future returns.
To choose among the best subcategories of equity mutual funds, recognise their risk-return trait. Because for every level of return you seek, there is risk involved.
To choose among the best mutual fund schemes consider a host of other factors such as the risk ratios, the risk mitigation measures at the fund house, the portfolio characteristics of the fund under consideration, the credentials of the fund manager, the performance of schemes under his watch, and whether the expense ratio levied is well-justified by the performance of the scheme, and the investment processes and systems followed at the fund house.
Also, do note that not all NFOs may be worth your hard-earned money. Some NFOs deserve to be skipped.
Investing is an individualistic exercise; there is no one-size-fits-all approach. Therefore, choose schemes considering your age, risk profile, broader investment objective, the financial goals you wish to address and the time in hand to achieve those envisioned goals. Stop following the herd.
Amid volatile equity markets to make fresh investments, utilise the significant market declines to make staggered lump sum investments. And to plan for your envisioned financial goal/s, make SIP investments and don’t commit the mistake of stopping or discontinuing SIPs as it could put brakes on the compounding process and derail accomplishing the envisioned goal/s.
Be a thoughtful investor.
Happy Investing!
This article first appeared on PersonalFN here.
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