Equity MF inflows likely slowed down further in March after February dip

Investments into equity mutual fund (MF) schemes likely slowed down further in March after the 26 per cent month-on-month (M-o-M) decline in February, going by the recent trend in MFs' equity-buying data.

 

As of March 26, MFs had deployed a net Rs 8,485 crore in the equity market during the month compared to a net buying of Rs 48,000 crore in February and Rs 57,650 crore in January, shows data from the Association of Mutual Funds in India (Amfi).

 

The quantum of net equity buying by MFs depends on several factors — inflows and outflows from equity and hybrid schemes, changes in equity allocation in hybrid schemes, and changes in cash holdings.

 

Inflows into equity MF schemes, after staying resilient during the initial months of equity market correction, have been on a decline since January. The slowdown in net collections has mostly been due to decline in lumpsum inflows amid a fall in new scheme launches. 

 

Gross lumpsum investments in February dropped to approximately Rs 33,000 crore, down from Rs 44,800 crore in January and Rs 50,500 crore in December 2024.  Lumpsum inflows into equity MFs primarily come from HNIs and institutional investors, influenced by market corrections, valuation opportunities, and strategic investment decisions. New fund offerings (NFOs), particularly sectoral and thematic funds, also attract significant lumpsum contributions.

 

The market correction has also been a factor, say experts, as the sharp drawdowns during the September-February period wiped out near-term returns of equity schemes. Strong returns of equity schemes across time-frames have been the major draw for investors in recent years. The equity market rally and attractive past returns had led to 10 million new investor additions in the October 2023-September 2024 period.

 

However, SIP inflows have largely remained unaffected. In February, SIPs brought in Rs 26,000 crore compared to Rs 26,400 crore in January.

 

Despite the slowdown in March, MFs have invested more than double the amount in financial year 2024-25 (FY25) than they did in FY24. As of March 26, the net deployment tally of FY25 stood at a record high of Rs 4.67 trillion compared to Rs 2 trillion in FY24.

 

The sharp surge in equity buying by MFs has come on the back of record inflows into equity and hybrid MF schemes. The consistent SIP inflows have also added to the buying power of MFs.

 

In the first 11 months of FY25, investors had put a net Rs 3.9 trillion into active equity schemes. In FY24, the net investment was Rs 1.8 trillion, showed Amfi data.

 

The surging equity-buying capacity of MFs has proven to be a key support for the market during phases of heightened selling by foreign institutional investors (FIIs).