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Fund houses attributed the strong inflow to continuous participation from retail investors through systematic investment plans (SIPs), positive returns from equity funds and steps taken by Amfi to create awareness among investors.
"The year 2017 has seen record inflows in equity mutual funds (MF) driven by low bank deposit rates and loss of investor interest in alternatives such as property and gold due to the lacklustre performance of these asset classes.
"Past performance and hopes of a sharp cyclical recovery in earnings growth have also triggered increased investor interest in equity mutual funds," Bajaj Capital CEO Rahul Parikh said.
The spike in bank deposits and consequent decline in interest rates following demonetisation on November 8, 2016 has also helped mutual funds.
According to Amfi data, equity and equity-linked saving schemes (ELSS) attracted an impressive inflow of around Rs 1.33 trillion last year, much higher than the Rs 510 billion inflow seen in 2016.
SIPs have been a key driver for these flows, while EPFO has been another major contributor through passive funds.
Fund houses have garnered over Rs 530 billion through SIPs -- a preferred route for retail investors to invest in mutual funds as it helps them reduce market timing risk.
Over the last few years, MFs have proved to be a low-cost and transparent way to channelise savings towards financial investments.
Franklin Templeton Investments India President Sanjay Sapre said going ahead, low penetration of mutual funds, coupled with increasing levels of financial literacy and lack of suitable alternatives for long-term wealth creation, will drive growth for the segment.
"Further, technology is likely to be a key enabler of growth to deepen reach and build scale using the trinity of Jan Dhan, Aadhaar and mobile (JAM) for everything from KYC to payments.
"This will not only help improve distribution reach across the country but will also reduce costs and improve ease of investing," he added.