Equity MF inflows soar to near Rs 4 trn in 2024; outlook cautious for 2025

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Equity mutual funds witnessed a remarkable surge in inflows to nearly Rs 4 trillion in 2024, more than double the amount recorded in the preceding year, reflecting strong investor confidence and a continued shift towards long-term investing, particularly through Systematic Investment Plans (SIPs).

Despite the strong performance in 2024, the outlook for 2025 appears cautious. The mutual fund industry has started to see a slowdown in equity fund flows since early December, a trend attributed to increased market volatility, Santosh Joseph, Co-founder and CEO of Germinate Investor Services, said.

Historically, inflows into equity funds are closely tied to market performance, and periods of market uncertainty often result in subdued investor activity.

"As a result, 2025 may witness muted activity in terms of new fund launches and equity fund mobilization especially as market volatility persists," Santosh Joseph, Co-founder and CEO of Germinate Investor Services, said.

However, long-term investors may continue to stay the course, benefiting from the wealth creation potential of equity markets when conditions stabilise, he added.

In 2024, the total inflow into equity and equity-oriented schemes stood at Rs 3.94 trillion, compared to Rs 1.61 trillion in 2023, according to data from the Association of Mutual Funds in India (AMFI).

The impressive growth in inflows contributed to a 40 per cent increase in the assets under management (AUM) of the mutual fund industry, which reached Rs 30.57 trillion by December 2024, up from Rs 21.8 trillion in the previous year.

The growth has been largely attributed to consistent market performance, improved financial literacy, and the increasing adoption of SIPs, which offer a disciplined approach to investing.

Ganesh Mohan, CEO of Bajaj Finserv AMC, noted that retail investors are becoming increasingly aware of equities as a vital tool for wealth creation.

"The market's consistent performance, along with the digitization of investment processes, has made equity mutual funds more accessible to investors, and the widespread use of SIPs has contributed to the inflow momentum," he said.

He also highlighted how retail investors have become more resilient, with many choosing to stay invested even during market corrections.

Within equity schemes, thematic funds led the charge with the highest net inflows of Rs 1.55 trillion in 2024. Midcap and small-cap funds also saw significant inflows, with Rs 32,465 crore and Rs 34,223 crore respectively, while large-cap funds garnered Rs 19,415 crore.

This broad-based growth in various segments reflects investor optimism, especially in the small and mid-cap sectors, which delivered strong returns in 2023 and 2024, Santosh Joseph, Co-founder and CEO of Germinate Investor Services, said.

SIPs have become a major contributor to the mutual fund industry, with total SIP contributions reaching Rs 2.5 trillion in 2024. The month of December saw a record high inflow, with monthly SIP contributions peaking at Rs 26,459 crore, further suggesting the growing appeal of regular, long-term investing.

Moreover, investor participation has also been growing, as suggested by the rise in folio numbers. By December 2024, the number of folios in equity funds increased by 4.45 crore to 15.75 crore, indicating a strong and growing interest in equity mutual funds.

Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth, said that India's progress toward financial inclusion has been gradual yet promising, with household financial preferences increasingly shifting toward equity and equity mutual funds.

Over the past decade, the share of equity and equity mutual funds in household financial assets has grown from just 5.3 per cent in March 2014 to 16.4 per cent by September 2024. This shift reflects a significant change in how Indian households are approaching their financial planning, she added.

Meanwhile, the reliance on traditional savings instruments such as small savings schemes and deposits continues to decline, with deposits seeing their share fall from 38.8 per cent in March 2014 to 32.6 per cent by September 2024.

"The combination of a fairly valued market, strong earnings potential, and growing financial awareness will continue to drive equity inflows and the wealth creation process in the coming years," she added.