Equity mutual funds witnessed a noticeable slowdown in May 2025, with all three major categories — large-cap, mid-cap, and small-cap funds — showing significant drop in net inflows, according to the latest data released by the Association of Mutual Funds in India (AMFI).

After months of consistent inflows, investors appeared to pause fresh allocations, likely due to market highs and cautious sentiment. Large-cap mutual funds were the worst hit, while systematic investment plans (SIPs) continued their upward trajectory, highlighting sustained investor commitment to long-term investing.

Steepest Fall Seen in Large-Cap Mutual Funds

Large-cap mutual funds, which typically invest in top 100 companies by market capitalization, saw the most pronounced decline. In May 2025, these funds garnered net inflows of only ₹1,250.4 crore, a drop of more than 53% from April's ₹2,671.5 crore.

This is the lowest inflow for large-cap schemes since August 2024, suggesting possible profit-booking by investors or a tactical rotation to higher-risk, higher-return segments like small and mid-cap funds.

"Large-cap funds received the lowest net inflows among the prominent equity categories… indicating a shift toward riskier segments like mid and small caps," said Himanshu Srivastava, Associate Director – Manager Research at Morningstar Investment Research India.

Mid and Small-Cap Funds Also See Decline

Although not as steep as large-caps, mid-cap and small-cap mutual funds also registered a month-on-month dip in inflows.

• Mid-cap funds attracted ₹2,808.7 crore in May 2025, down around 15% from April.

• Small-cap funds saw net inflows of ₹3,214 crore, nearly 20% lower than the previous month.

Despite this, small-cap funds led the inflows among equity categories for the month, underlining continued investor interest in high-growth, albeit volatile, segments.

Srivastava noted, "Small-cap continues to be a key draw despite its inherent volatility, driven by strong domestic sentiment and long-term return expectations."

However, he cautioned investors to evaluate their exposure carefully, advising that allocations must align with individual risk appetite and diversified asset strategies.

Equity Mutual Fund Inflows Fall for Third Month

The overall equity mutual fund inflows also weakened, reflecting a broader moderation in market sentiment:

• Total net inflows into equity mutual funds fell to ₹18,994.56 crore in May 2025, down 21.7% from April’s ₹24,253 crore.

• This marks the third consecutive month of decline, though the industry has still recorded 51 continuous months of net positive inflows.

This moderation may be attributed to elevated market valuations, pre-election cautiousness, and investors rebalancing their portfolios after months of strong equity market performance.

SIPs Provide Stability Amid Market Rebalancing

Amidst the slowdown in lump-sum flows, systematic investment plans (SIPs) continued to be a bright spot for the industry:

• SIP contributions rose to an all-time high of ₹26,632 crore in May 2025, surpassing the previous month’s record.

• This highlights investor preference for disciplined and long-term wealth-building approaches, even during short-term market uncertainty.

SIPs remain a cornerstone of India’s retail investment story, offering rupee-cost averaging and encouraging financial discipline among investors.

Mutual Fund Industry AUM Reaches All-Time High

Even with declining net inflows into equities, the mutual fund industry's total assets under management (AUM) touched a new milestone:

• AUM rose to ₹72.2 lakh crore in May 2025, helped by the surge in SIP flows and mark-to-market gains from market performance.

This reflects the resilience of India’s mutual fund ecosystem, which continues to attract both retail and institutional investors despite intermittent volatility.

Historical Data Highlights Large-Cap Volatility

To place the current dip in context, here's a look at monthly inflows into large-cap funds over the past year:

As seen above, large-cap fund inflows tend to be cyclical, with occasional dips following market rallies or sector rotation trends.

Outlook: Volatility and Opportunity Ahead

While the decline in mutual fund inflows may concern short-term market watchers, industry experts suggest this could be a healthy pause, allowing investors to consolidate gains and reassess strategies.

Moreover, rising SIP flows and expanding AUMs indicate continued long-term investor confidence in the Indian equity story.

Going forward, asset managers are expected to focus on investor education, highlighting risk management, diversification, and goal-based investing as the key to sustainable wealth creation.

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