The slump in the equity market appears to be making domestic investors who seemed to be going all in on equities take a relook at their strategies. Data released by Association of Mutual Funds of India (AMFI) showed net inflows into equity mutual funds declined for the second consecutive month, indicating that investors were going slow amid the correction, even if they may not be completely pulling out.
Equity mutual fund schemes saw inflows of Rs 29,303.34 crore in February 2025, which is 26 per cent lower than the Rs 39,687.78 crore in January. The flows in January had been about 3.6 per cent lower than in December.
February marked the 48th consecutive month of net inflows into the equity segment, analysts pointed out. However, the pace of investments moderated due to increased market uncertainty and a broader correction in equities, pointed out Nehal Meshram, senior analyst – manager research at Morningstar Investment Research India.
From the peak in September 2024, the BSE Sensex has tumbled around 14 per cent. Midcap and smallcaps have seen a sharper more than 20 per cent fall.
“The escalation in global trade tensions and Federal Reserve’s tightening stance triggered a risk-off sentiment thus weighing on investor sentiments. Additionally, geopolitical tensions, slower domestic earnings growth, profit booking at high valuations, and continued FII outflows didn’t augur well for the markets,” said Meshram.
While short-term headwinds have tempered investment flows, the continued inflows indicate domestic investor confidence remains strong, believes Meshram.
While most of the equity fund categories saw inflows decline, it is the sectoral/thematic funds category that has seen a significant decline over the last 2 months. This was a category that had seen a huge number of fund launches in the last 12-18 months and in turn inflows.
AMFI data shows in January, flows into sectoral/thematic funds had tumbled 41 per cent to Rs 9,016.60 crore from Rs 15,331.54 crore in December. In February, inflows into sectoral/thematic have seen a further 37 per cent decline over January to Rs 5,711.58 crore. Midcap and smallcap schemes, which had also been a big draw among investors too have seen around 34 per cent decline in flows month-on-month.
Largecap funds, on the other hand, saw inflows only slightly lower, indicating investors were finding valuation comfort. Large cap funds saw inflows of Rs 2,866 crore in February, compared with Rs 3,063 crore in January.
Overall retail assets under management (across equity, hybrid and solution-oriented schemes) declined to Rs 36.44 lakh crore in February from Rs 38.77 lakh crore in January.
“Continuous monthly market correction has led to a slowdown of sales in February. Investors are being cautious in allocations and may postpone or stagger in near future,” said Akhil Chaturvedi, executive director and chief business officer at Motilal Oswal AMC.
While equity funds continued to see inflows, although lower month-on-month, debt funds saw outflows, mainly due to investors pulling out funds from shorter-duration funds, such as overnight, ultra-short and low-duration funds.
Overall, debt funds saw outflows of Rs 6,525.56 crore in February, compared with over Rs 1.28 lakh crore inflows they had seen in January.