Market volatility fails to draw 'smart money' to equity MFs in Feb

Investors adopt 'wait and watch' stance amid global uncertainties, say experts

February saw a shift in investor behaviour as lumpsum inflows into equity mutual fund (MF) schemes — often regarded as ‘smart money’ or ‘opportunistic flows’ — declined sharply despite a significant market correction.

 

Gross lumpsum investments dropped to around ₹33,000 crore, down from ₹44,800 crore in January and ₹50,500 crore in December 2024.

 

This decline in lumpsum inflows was the primary driver behind the 26 per cent month-on-month drop in net investments into equity schemes, as systematic investment plan (SIP) inflows remained steady at ₹26,000 crore.

 

Historically, lumpsum inflows have surged during periods of market volatility or corrections. For instance, the highest monthly gross lumpsum inflows were recorded in June 2024, a month marked by post-election turbulence. However, February’s trend deviated from this pattern.

 

According to MF officials, while some investors have already deployed surplus funds over the past three months, others may be holding back in anticipation of further market corrections. Additionally, global uncertainties, particularly around trade tariffs, may be contributing to the cautious stance. 

 

“While SIPs have remained steady, tactical lumpsum investments from both high-net-worth individuals (HNIs) and retail investors appear reserved, likely due to global headwinds or profit-booking,” said Suranjana Borthakur, head of distribution & strategic alliances, Mirae Asset Investment Managers (India).

 

Experts caution against interpreting February’s trend as a reversal of past behaviour.

 

“It is too early to conclude whether the trend has shifted. While past data shows investors capitalising on market dips through lumpsum investments, the current environment of uncertainty, liquidity concerns, and evolving investment preferences may have altered this behaviour. Investors now seem to favour a more cautious, long-term approach through SIPs rather than immediate large-scale deployments,” said Nehal Meshram, senior analyst, manager research, Morningstar Investment Research India.

 

Sandeep Bagla, chief executive officer (CEO) of TRUST MF, expects inflows to rebound in the coming months. 

 

“A combination of domestic growth slowdown and heightened global uncertainties, driven by policy changes under the Donald Trump administration, has led to a correction in market valuations. Sustained foreign portfolio investor (FPI) selling has further added to market discomfort. Investors are adopting a cautious stance and are likely to increase investments once market volatility subsides, which could take a couple of months,” he explained. 

 

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, said Meshram.

 

Gross lumpsum inflows are calculated by deducting equity SIP inflows from the total gross inflows into active equity schemes.

 

While SIP inflows have remained stable, a concerning trend has emerged with a surge in SIP account closures. SIP accounts have declined for two consecutive months as discontinuations outpaced new account openings. In February, net SIP accounts fell by 1 million to 101.7 million.