Equity MF inflows hit 13-month low in May despite market recovery

Systematic investment plan inflows hit a new high in May, but rising redemptions and cautious investor sentiment pushed net equity MF inflows to a 13-month low

Inflows into equity mutual fund (MF) schemes declined in May, logging their lowest tally in 13 months at ₹ 19,013 crore. It came even as the gross systematic investment plan (SIP) inflows surged to a record high of ₹26,688 crore.

 

The decline in the net inflows was due to a 16 per cent month-on-month increase in redemptions last month. Investors pulled out ₹37,591 crore in May, the highest since July 2024, according to data released by the Association of Mutual Funds in India (Amfi).

 

Higher outflows, experts said, can be attributed to profit booking amid geopolitical and trade uncertainties.

 

 

"The slowdown can be attributed to a mix of factors: a less buoyant equity market in May compared to April, concerns around global economic headwinds, and a possible consolidation phase or profit booking in the domestic equities following sharp rallies in the previous months and stretched valuations," said Himanshu Srivastava – Associate Director — Manager Research, Morningstar Investment Research India.

 

The India-Pakistan tensions and the heightened volatility in equity markets globally could also be a factor, according to experts.

 

"Equity net sales have seen a sharp downtick largely on account of higher redemptions. This was probably due to the war-like situation in the beginning of the month leading to sentiment being cautious," said Akhil Chaturvedi, Executive Director & Chief Business Officer, Motilal Oswal AMC.

 

The equity market witnessed recovery for the third month in May with the benchmark Nifty 50 index rising 1.7 per cent.

 

According to experts, investors who had invested close to the market peak may be using the recovery to take their money out.

 

Many investors tend to refrain from redeeming when the value of their investment drops significantly below the peak value they have seen in the past - influenced by 'anchoring bias', said Nilesh D Naik, Head of Investment Products, Share.Market. 

 

"As the market started recovering from March, the redemptions have gradually started increasing. If the market continues to remain strong, we could see this trend for another month or so, but stronger market sentiments could subsequently lead to increased gross inflow, thus normalizing the ratio," he added.

 

While the redemptions went up, fresh investments remained flat, supported by record systematic investment plan (SIP) inflows. Investments through SIPs went up marginally to a new high of Rs 26,688 crore.

 

While the inflows were subdued, the mark-to-market gains due to market recovery led to a significant rise in the total assets managed by the MF industry.

 

"MF industry has crossed ₹70 trillion in assets under management reaching new highs, driven by resilient retail participation and consistent SIP inflows. The growth of SIP is particularly encouraging, indicating a shift towards disciplined, long-term investment," said Venkat N Chalasani — Chief Executive — Amfi.

 

Among the key equity fund categories, the sharpest decline was recorded in largecap funds as the inflows more than halved to ₹1,250 crore. Mid and smallcap funds saw inflows decline 15 per cent and 20 per cent to ₹2,809 crore and ₹3,214 crore, respectively.