Equity Market Volatility Affects Inflows, SIP Discipline Remains Strong

All is not gone - investment discipline inches up

There is some dampness in the sentiment as gross inflow in equity schemes declined to a 11-month low in Feb 2025, although the gross outflow remained low, which indicates that investors continue to remain patient even amidst the noise. Volatility has been high in recent months, especially in the erstwhile leapfrogging small-cap and mid-cap indices witnessing a sharp decline of ~14-18% so far in 2025. However, another indicator of rising financial discipline is a small decline of ~1.5% mom in systematic investment plan or SIP inflow which managed to remain high at Rs260bn.

Equity AUM slows down as net inflow shrinks amid a choppy market

As per the data released by AMFI (Association of Mutual Funds of India), the overall average assets under management or AUM of mutual funds in Feb 2025 declined by ~1% mom to Rs68tr due to the dual impact of a continued decline in capital market and a dip in inflow. Consequently, equity AUM continued to shrink and was lower by ~3% mom. Net inflow in equity funds slowed to Rs293bn, lower by ~26% mom, while debt funds witnessed a net outflow of Rs65bn. We expect the volatility to continue in the near term, but we remain optimistic over the mid- to long-term horizon amid improving geographic penetration as well as the rising popularity of mutual fund schemes, mainly among the young and mid-income investors.

Large-cap funds are a preferred choice; thematic/sectoral lose sheen

Net inflow into large-cap funds stood at Rs29bn, down by ~6% mom, witnessing lower volatility as compared other schemes, holding up investor preference. Net inflow in small- cap, mid-cap, large & mid-cap and multi-cap funds witnessed a sharper decline, down by ~35%, ~34%, ~36% and ~29%, respectively, Thematic/sectoral funds saw a second straight month of a sharp decline in net inflow, lower by ~37% mom (contributing to ~20% of net equity inflow), due to smaller new fund offer or NFO inflow. 

Thematic/sectoral funds saw seven NFOs; however, they garnered only ~Rs21bn vs. three NFOs garnering ~Rs28bn in Jan 2025. Large-cap, mid-cap, large & mid-cap and small-cap schemes accounted for ~43% of equity fund inflow as against ~45% in Jan 2025.

SIP inflow stays firm, AUM witnesses a dip

The SIP inflow remained high at Rs260bn in Feb 2025, up by ~36% yoy and down by ~1.5% mom. New SIPs registered were the lowest so far in FY25 at 4.5m, although accounts discontinued were also lower by ~11% mom at 5.5m. As a large portion of SIPs is equity- linked, SIP AUM declined sharply by ~6% mom to Rs12.4tr.