February sees 26% drop in equity MF flows, SIP inflows down to 3-month low

In February 2025, investors injected Rs 29,303.34 crore into equity-oriented mutual funds, marking a 26 per cent decline from the Rs 39,687.78 crore invested in January, according to data released by the Association of Mutual Funds of India (AMFI).

 

The net inflow into open-ended equity funds fell, but managed to stay in the positive for the 48th month in a row. The fall in inflows has come at a time of deep market correction, as February saw benchmark BSE Sensex slump 5.55 percent while Nifty 50 fell by 5.89 percent. This drop in inflows highlights the subdued investor sentiment, influenced by several key factors, including global concerns over rising interest rates, particularly in the United States, escalating trade tensions, and geopolitical instability.

 

 

" The escalation in global trade tensions and Federal Reserve’s tightening stance triggered a risk-off sentiment thus weighing on investor sentiments. Additionally, geopolitical tensions, slower domestic earnings growth, profit booking at high valuations, and continued FII outflows didn’t augured well for the markets.

 

While short-term headwinds have tempered investment flows, domestic investor confidence remains strong, as indicated by continued inflows. Investors are adopting a cautious yet steady approach, reassessing their portfolios while maintaining long-term investment commitments," said  Nehal Meshram, Senior Analyst – Manager Research, Morningstar Investment Research India.

 

Among the different categories, sector and thematic funds continued to dominate, attracting net inflows of Rs 5,711.58 crore. However, a significant portion of this—Rs 2,072 crores—came from the launch of seven new sector/thematic funds during the month. Investors bet on policy-driven themes like infrastructure, defense, and digital transformation.

 

"These funds are typically cyclical in nature and are best suited for investors who have a deep understanding of sector dynamics or the resources to track market trends closely. Given their high-risk, high-return proposition, it is crucial for investors to carefully time their entry and exit to navigate volatility effectively. The recent strong performance of select sector funds has drawn increased investor interest, but caution is advised, as sector-based investments can be unpredictable," said Meshram.

 

Beyond thematic funds, flexi-cap funds saw the second-highest net inflows, totaling Rs 5,104.22 crore, highlighting investor preference for diversified strategies with flexibility across market caps. 

 

Meanwhile, small-cap and mid-cap funds continued to attract healthy inflows, receiving Rs 3,722.46 crore and Rs 3,406.95 crore, respectively, as investors sought opportunities in high-growth potential segments.

 

Large-cap funds also saw strong investor interest, reflecting their appeal from both a valuation and asset allocation perspective.

 

Data shows that net investments into the smallcap fund category fell 34.9 percent, while inflows into the midcap fund segment crashed 33.8 percent to Rs 3,406.95 crore during February.

 

On the other hand, inflows into large-cap funds dipped just 6.4 percent to Rs 2,866 crore.

 

Notably, all the equity fund categories apart from the focused fund category saw a dip in inflows during the last month.

 

"Continuous monthly market correction has led to slowdown of the sales for the first time in Feb, this could also be partially attributed to a truncated month. Allocations are being tilted towards Multi Asset Allocation, Large and Flexi categories. Investors are being cautious in allocations and may postpone or stagger in near future. Having said so, net sales of Rs 30,000 crore is also a pretty healthy and the broader sentiment looks optimistic long term wealth creation perspective," said  Akhil Chaturvedi, Executive Director & Chief Business Officer, Motilal Oswal AMC.

 

"Equities continued to see strong flows in February, but there was a shift away from small and mid-cap compared to previous months. Inflows into large-cap stocks remained almost intact due to valuation comfort. We observed a paradox of risk, as equity flows dropped by about 25% compared to January. It's important to remember that risk increases as markets rise and decreases when markets fall. However, investor flows often follow their own pattern," said  Anand Vardarajan, Chief Business Officer, Tata Asset Management.

 

Further, monthly systematic investment plan (SIP) inflows into mutual funds fell to a three-month low of Rs 25,999 crore in February as market selloff intensified

 

"The SIP inflows have come down, but the drop is not significant, partly due to February being a shorter month. I believe investors should continue their SIP flows as it is a great time to accumulate units. Inflows in most equity funds have also dipped, except in the focused fund category. Sectoral funds which saw disproportionately high inflows in previous months, saw flows coming down to around to Rs 5,700 crore in spite of seven NFOs in the category which ended up garnering somewhere around Rs 2,000 crore. Overall, NFO momentum has continued 29 new fund launches, collecting somewhere around 4,000 crore," said  Suranjana Borthakur, Head of Distribution & Strategic Alliances, Mirae Asset Investment Managers (India).

 

Debt funds

 

On the fixed-income side, debt mutual funds saw net outflow of Rs 6,525.56 crore in February, as against net inflow of Rs 1.28 lakh crore in January.

 

Despite the overall outflows, liquid funds saw the highest inflows at Rs 4,976.97 crore, followed by corporate bond funds (Rs 1,064.83 crore) and short-duration funds (Rs 473.53 crore). However, several short-term debt categories witnessed heavy redemptions, with ultra-short duration funds (Rs 4,281.02 crore), money market funds (Rs 275.96 crore), low-duration funds, and overnight funds (Rs 2,263.94 crore) seeing the highest outflows. Together, these four categories accounted for 90% of total redemptions.

 

10 out of 16 debt fund categories recorded net outflows, indicating that the bulk of redemptions were concentrated in short-duration funds. Despite short-term redemptions, debt funds remain an important allocation tool, and flows may stabilize in the coming months as market conditions evolve.

 

"Medium to long duration and gilt funds saw marginal inflows reflecting continued investor interest. Investors may be positioning themselves for interest rate cuts by the RBI in the coming months, which could lead to capital appreciation in long-duration bonds. Additionally, gilt funds remain attractive due to their low credit risk and sovereign backing, making them a preferred choice during periods of economic uncertainty," said Meshram. 

What should investors do? 

 

" Investor sentiment in February shifted toward stability, with small- and mid-cap inflows plunging (-35%, -34%) amid sharp index corrections (-13.8%, -10.5%). Large-cap funds saw milder outflows (-6.4%), while Focused Funds surged 64% as investors favored active management. Debt funds faced ₹6,526 crore outflows, particularly in ultra-short duration (-₹4,281 crore), while liquid funds gained ₹4,976 crore, signaling a preference for liquidity. Despite volatility, SIP contributions remained strong at ₹26,400 crore (-0.2% MoM). Arbitrage funds (₹3,592 crore inflows) dominated hybrid strategies as a hedge against uncertainty. With RBI’s repo at 6.25%, an expected rate cut and CPI inflation at 4.31%, debt fund appeal may revive. The 5.6%-5.9% Nifty/Sensex correction presents valuation opportunities. Investors are shifting tactically, balancing market corrections with selective high-conviction Focused Funds while awaiting clearer macro signals, " said Karthick jonagadla, smallcase manager and Founder & CEO of Quantace Research.