In May 2025, equity mutual fund inflows in India declined to ₹19013 crore, marking a 13-month low, according to data released by the Association of Mutual Funds in India (Amfi). The decline has been attributed to investor profit booking, market consolidation, and global volatility stemming from geopolitical developments and inflation concerns.

This marks the fifth consecutive month of declining inflows into equity-oriented schemes and reflects a 22 percent drop from April’s net inflow of ₹24269 crore. Despite the dip, May continued the positive momentum for the 51st straight month, highlighting the resilience of retail investor sentiment, especially through systematic investment plans (SIPs).

SIP Flows Remain Resilient

While lump-sum investments into equity funds slowed, SIP contributions remained strong, with inflows reaching ₹26688 crore, slightly higher than ₹26632 crore in April. This underlines a growing discipline among retail investors, many of whom remain committed to long-term wealth creation despite short-term market noise.

Category-wise Breakdown of Equity Fund Flows

Within equity funds, Flexi Cap Funds attracted the highest inflows in May, totalling ₹3841 crore. This was followed by:

• Small-cap Funds: ₹3214 crore (down from ₹3999 crore in April)

• Mid-cap Funds: ₹2808 crore (down from ₹3313 crore in April)

• Large-cap Funds: ₹1250 crore (down from ₹2671 crore in April)

Meanwhile, certain fund categories saw net outflows, including:

• Equity Linked Savings Schemes (ELSS): ₹678 crore outflow

• Value Funds: ₹92 crore outflow

• Dividend Yield Funds: ₹21 crore outflow

Reasons Behind the Slowdown

Experts attribute the slowdown in equity inflows to multiple factors:

• Market Consolidation: Following strong gains in previous months, investors have turned cautious amid signs of consolidation

• Profit Booking: Sharp rallies have led to stretched valuations, prompting some investors to realise gains

• Geopolitical Tensions: Uncertainty fuelled by India’s Operation Sindoor against Pakistan and ongoing global inflationary trends has dampened risk appetite

• Subdued Market Momentum: Although markets continued their upward journey in May, the pace of gains was modest, leading to hesitant fresh allocations

Jatinder Pal Singh, CEO of ITI Mutual Fund, noted that the risk-off sentiment was largely driven by geopolitical events and profit booking. Himanshu Srivastava of Morningstar Investment Research India echoed these views, citing global headwinds and valuation concerns as key contributors to the slowdown.

Anoop Vijaykumar, Head of Equity at Capitalmind MF, added, investors are recalibrating their large-cap allocations as growth expectations moderate. He noted that while interest in mid and small-cap funds remains, it's being tempered by valuation consciousness.

Record High for Industry AUM

Despite the slowdown in equity flows, the overall mutual fund industry saw an infusion of over ₹29000 crore in May, pushing assets under management (AUM) to a record ₹72.2 lakh crore, up from ₹70 lakh crore at the end of April.

This surge in AUM indicates strong underlying investor confidence, especially as SIP and hybrid products continue to gain popularity.

Gold ETFs and Debt Funds

Gold exchange-traded funds (ETFs) recorded a net inflow of ₹292 crore, reversing a marginal outflow of ₹6 crore in April. This signals renewed interest in gold as a hedge against volatility, particularly amidst geopolitical uncertainties.

Conversely, debt-oriented schemes witnessed a net outflow of ₹15908 crore, compared to a staggering ₹2.2 lakh crore inflow in April. According to Harshad Patwardhan, CIO at Union Asset Management, this swing was due to shifting expectations around monetary policy. As the market increasingly expects monetary easing, especially on the shorter end of maturity, investors have moved assets accordingly.

The only debt category to register a meaningful inflow was corporate bond funds, as investors sought to position themselves ahead of key policy announcements and interest rate adjustments.

Broader Implications

The consistent SIP growth coupled with declining lump-sum equity inflows highlights a maturing investment culture in India. Investors are increasingly moving away from speculative behaviour and embracing systematic, long-term investing.

However, the fall in monthly equity inflows for five straight months could serve as a signal that valuation concerns, market fatigue, or external risks may start influencing broader investment flows unless earnings catch up with price growth.

This pause also gives asset managers a chance to assess market dynamics, reprice offerings, and help investors realign expectations with fundamentals.

Conclusion

The mutual fund industry remains on a growth trajectory, supported by retail SIPs, expanding investor base, and record high AUMs. While May 2025 marked a setback in equity fund inflows, the long-term outlook remains stable given strong retail participation and macroeconomic growth trends.

With geopolitical risks, valuation sensitivity, and interest rate expectations influencing asset allocation in the short term, fund managers and investors alike will be closely watching domestic earnings trends, global monetary signals, and market stability before increasing exposure in the upcoming months.

Disclaimer

This article is for educational and informational purposes only and does not constitute financial advice. Investment decisions should be based on individual risk tolerance and consultation with SEBI-registered advisors. Market conditions are volatile and subject to change. Neither the author nor the platform is responsible for losses arising from use of this information.

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