Foreign Investors pump $1.4 bn into India-ETFs dominate, Active funds lag

India emerged as one of the top destinations for foreign capital in June 2025, recording net inflows of $1.4 billion into listed funds, marking the second consecutive month of positive fund flows. The surge was led by Exchange-Traded Funds (ETFs), even as traditional active funds continued to bleed assets., as per data analysed by Kotak Institutional Equities.

According to data from Kotak Institutional Equities (KIE), the ETF segment alone attracted $2.4 billion in June, effectively offsetting the $1 billion in outflows from actively managed non-ETF funds. The growing investor tilt toward passive vehicles is reshaping foreign portfolio trends in India and other emerging markets. 

 

India was the second-highest recipient of foreign capital among emerging markets in June, trailing only South Korea ($1.9 billion). Other major inflow recipients included Brazil ($1.2 billion) and Taiwan ($1 billion).

 

China stood out as the only major market to report net outflows, with investors pulling out $36 million, highlighting continued caution around the world's second-largest economy.

Key Highlights:

Net Inflows into Listed Funds: India-focused listed funds recorded inflows of $1.4 billion in June. This was driven by ETF inflows of $2.4 billion, which outweighed the $1 billion in outflows from non-ETF (actively managed) funds.

India-Dedicated Funds: These funds saw total net inflows of $726 million, with $633 million coming from ETFs and $93 million from non-ETFs.

GEM Funds: Global Emerging Market (GEM) funds also contributed to the inflow trend, adding $563 million, again led by ETF inflows of $1.3 billion offset by $727 million in non-ETF outflows.

 

Emerging Market Trends:

 

India was among the top beneficiaries in emerging markets, attracting $1.4 billion, second only to South Korea ($1.9 billion).

Other key markets like Brazil and Taiwan saw inflows of $1.2 billion and $1 billion, respectively.

China remained an outlier with modest outflows of $36 million, continuing its recent trend of investor caution.

 

Country Allocations:

India’s allocation within Asia ex-Japan funds declined slightly to 16.3% in June from 16.4% in May.

Within GEM funds, India’s weight slipped to 18.7% from 19%, reflecting cautious rebalancing despite the inflows.

ETF allocations remained stable while non-ETF allocations declined marginally, suggesting a stronger bias toward passive investing.

As of June 2025, the total foreign portfolio investor (FPI) assets under custody (AUC) in India stood at $865 billion.

The United States remains the largest source of FPI flows into India, with significant contributions from sovereign wealth funds, mutual funds, and pension funds.

"Listed funds witnessed inflows for the second consecutive month. The inflows were driven by ETFs, which attracted US$2.4 bn, offset by non-ETF outflows of US$1 bn. GEM funds saw US$563 mn of inflows, led by ETF inflows of US$1.3 bn, offset by US$727 mn of non-ETF outflows. India-dedicated funds witnessed inflows of US$726 mn (US$633 mn of ETF inflows and US$93 mn of non-ETF inflows). Listed emerging market fund flows were positive for most countries, except for China. South Korea, India, Brazil and Taiwan saw inflows of US$1.9 bn, US$1.4 bn, US$1.2 bn and US$1 bn,respectively. China witnessed outflows of US$36 mn," said Sanjeev Prasad of Kotak Institutional.

These inflows come despite ongoing global macroeconomic uncertainty. Investors appear to be re-allocating capital to markets with stronger growth prospects like India, especially through low-cost ETFs. Meanwhile, active fund managers seem to be taking a more cautious approach, leading to sustained non-ETF outflows.

With ETF momentum staying strong and geopolitical concerns elsewhere, India could continue benefiting from global asset reallocation trends in the coming months.