At the same time, mutual fund cash holdings have risen to a 15-year high, reflecting the wait-and-watch approach of fund managers.
SIP net closures raise red flags
SIP accounts had remained resilient during previous corrections—such as the Russia-Ukraine crisis in 2022–23—but that trend has now reversed.
The number of SIP account closures has been rising since the beginning of 2025.
“This is a worrying sign. SIPs are considered the most stable form of inflows. The net closure trend suggests a shift in investor sentiment,” Elara Capital said in the report.
Lump-sum inflows have also slowed since peaking in October 2024. That month saw ₹43,000 crore flow into mutual funds, led by ₹21,400 crore into ETFs and index funds. Since then, inflows have moderated steadily.
Mutual funds hold highest cash since 2010s
Fund managers are sitting on large cash piles. Total cash across active equity schemes rose to ₹1.96 lakh crore ($23 billion) in March 2025, from ₹1.74 lakh crore the previous month.
These are the highest levels since December 2011 and November 2018.
Large-cap schemes held 4.8% in cash—unchanged from February but still the highest since June 2023. Mid-cap and small-cap funds also maintained elevated cash levels at 6.7% and the highest since October 2023, respectively.
Most asset management companies (AMCs) have been increasing their cash buffers.
“This broad-based cash build-up shows a cautious stance amid fewer attractive investment opportunities,” the report noted.
Interestingly, past spikes in cash holdings were followed by rallies in large-cap indices like the Nifty, even though overall market breadth remained weak.
Inflows drop across mutual fund categories
Net inflows into equity mutual funds slowed to a 1-year low in March 2025. Total inflows stood at ₹25,000 crore, down from ₹29,000 crore in February and well below the ₹42,000 crore high in October 2024.
Thematic and sectoral funds saw the biggest fall. Inflows into these categories collapsed to just ₹170 crore in March, down sharply from ₹22,400 crore in June 2024.
Manufacturing funds saw outflows for the second month in a row. Innovation, Quant, Infrastructure, and Energy funds also recorded their first redemptions in two year, marking the largest outflows since the COVID-19 era.
Mid and small caps resilient, large caps gain favor
Despite market volatility, small-cap funds continued to attract inflows of ₹4,100 crore in March, 30% higher than the 1-year average.
Mid-cap funds also held steady.
Large-cap funds, which were out of favor for over two years, have seen improving inflows since August 2024.
A shift in NSE500 index weightage towards top-50 stocks suggests that large caps may continue to dominate.
“Elara Capital highlights that such index shifts in 2010 and 2018 preceded bear markets in small and midcaps, while large caps outperformed,” the report said.