Net mutual fund inflows into active equity schemes in India saw a sharp 40 per cent decline in May, reaching a one-year low, as market volatility and global uncertainties dampened investor sentiment and led to weaker lump-sum investments.
Key Points
- Net mutual fund inflows into active equity schemes in India dropped by 40 per cent month-on-month in May, hitting a one-year low of Rs 22,908 crore.
- The decline is attributed to significant market volatility, elevated crude oil prices, broader macroeconomic headwinds, and currency depreciation.
- Gross inflows into equity schemes fell 18 per cent, while redemptions rose 9 per cent, despite largely stable gross Systematic Investment Plan (SIP) investments.
- Flexicap funds, thematic, and value/contra categories experienced the most significant slowdowns, with mid and smallcap funds also seeing a 30 per cent decline.
- Despite the overall drop, the industry remains optimistic due to robust SIP inflows, which stood at Rs 30,954 crore in May, indicating a continued preference for structured wealth accumulation.
Net mutual fund (MF) inflows into active equity schemes plunged 40 per cent month-on-month (M-o-M) in May, as weaker lump-sum investments and higher redemptions weighed on flows.
Gross inflows into equity schemes fell 18 per cent M-o-M to Rs 57,604 crore, while redemptions rose 9 per cent to Rs 34,696 crore, dragging net inflows down to a one-year low of Rs 22,908 crore.
This came despite gross systematic investment plan (SIP) investments remaining largely stable.
Factors Behind the Decline
According to experts, the decline in net inflows can be credited to volatility triggered by an uncertain global environment.
“The lower inflows could be ascribed to near-term caution among investors amid significant market volatility.
"Elevated crude oil prices and broader macroeconomic headwinds have weighed on sentiment.
"Currency depreciation also contributed to the uncertainty,” said Sanjay Agarwal, senior director, CareEdge Ratings.
The Nifty 50 and Sensex ended May in the red as global uncertainties triggered fresh volatility.
Category-wise Impact
Net inflows into equity funds slowed across categories. Flexicap funds remained the biggest contributor to net inflows even as investments into the category halved.
“Flexicap saw inflows halve from Rs 10,148 crore to Rs 5,176 crore.
"Thematic and value/contra categories took the biggest hit, as they do when sentiment softens,” said Suranjana Borthakur, head of distribution and strategic alliances, Mirae Asset Investment Managers (India). Mid and smallcap funds, which attract a larger share of SIP inflows, saw around a 30 per cent decline in net inflows.
Broader Market Trends
The slowdown was more pronounced in other categories.
Net inflows into hybrid schemes nearly halved from April levels to Rs 10,560 crore, while inflows into passive and other schemes slumped 98 per cent to just Rs 362 crore.
Debt funds recorded net outflows of Rs 96,949 crore in May, largely due to reversals in liquid, money market, and corporate bond funds.
“There has been an across-the-board drop in collections in MFs.
"Investors appear to be fatigued by markets that have largely moved sideways over the past two years.
"SIP inflows have also declined for the past two months.
"The next two months will be critical for Indian markets as we assess the impact of the monsoon and the Q1FY27 results,” said Juzer Gabajiwala, director, Ventura.
Industry Outlook
The industry, however, does not see cause for concern as SIP inflows remain strong.
“The MF industry’s growth continues to be powered by robust SIP inflows, which stood at Rs 30,954 crore in May.
"The number of contributing SIP accounts remained steady at 96.4 million, reflecting the growing preference for MFs as a structured approach to wealth accumulation,” said Venkat Chalasani, chief executive, Association of Mutual Funds in India.
