Equity MFs rake in Rs 39,688 cr in January despite market volatility

Thematic funds get highest net inflows at Rs 9,017 cr, followed by smallcaps at Rs 5,721 crore

Equity-oriented mutual fund (MF) schemes attracted net inflows of ₹39,688 crore in January, despite a sharp selloff in the market. While the inflows were marginally lower — down 3.6 per cent compared to December — they were 21 per cent above the average monthly inflows for the calendar year 2024.

 

Among the 11 equity sub-categories, thematic funds received the highest net inflows at ₹9,017 crore, followed by smallcap funds at ₹5,721 crore and flexicap funds at ₹5,698 crore. Notably, inflows into smallcap funds increased by 22 per cent month-on-month, despite a considerable decline in the space.

 

In January, the Nifty Smallcap 100 fell 9.9 per cent, marking its worst monthly performance since May 2022 and the third worst since the pandemic. Midcaps also suffered, with the Nifty Midcap 100 falling 6.1 per cent, its steepest drop since October 2024. The midcap fund category received net inflows of ₹5,148 crore, compared to ₹5,093 crore in December.

 

 

The market rout has continued into February, with the Nifty Smallcap 100 and Nifty Midcap 100 each declining by another 5 per cent.

 

Though systematic investment plan (SIP) inflows declined marginally, they remained above ₹26,000 crore for the second month. In January, SIP inflows stood at ₹26,400 crore, down from the record tally of ₹26,459 crore in December.

 

Further, the total SIP accounts stood at 102.6 million in January, with 5.62 million new SIP registrations during the month. However, 6.13 million SIPs were discontinued, primarily due to reconciliation under regulatory norms. 

 

“The industry has eliminated roughly 2.5 million SIP accounts after a reconciliation between the registrar and transfer agents and exchanges,” said Venkat Chalasani, chief executive, Association of Mutual Funds in India. If SIPs are discontinued for more than three months, those accounts are required to be closed.

 

Owing to market volatility, total assets under management (AUM) for SIPs slipped to ₹13.2 trillion, compared to ₹13.63 trillion the month before. The overall industry AUM stood at ₹68 trillion at the end of January, down from ₹69.33 trillion at the end of December. Equity AUM fell from ₹30.9 trillion to ₹29.5 trillion during this period.

 

As investors continue pouring record sums into mid and smallcap funds, valuations in the smallcap space have become a topic of heated debate.

 

At a distributor conference last week, ICICI Prudential MF’s Chief Investment Officer S Naren said, “We think it is a clear time to take out lock, stock, and barrel from mid and smallcaps. I do not believe that this is the time to invest in mid and smallcap SIPs. I believe it is time to stop SIPs in mid and smallcaps because they are so overvalued. If you do SIP in an overvalued asset class, like China was three years back or Indian equity was in 1994 or 2007-2008, you only have yourself to blame.”

 

Radhika Gupta, managing director and chief executive officer of Edelweiss MF, later shared a presentation highlighting how rolling 10-year SIP returns since 2019 across categories have rarely turned negative.

 

The smallcap and midcap indices are now down nearly 19 per cent and 17 per cent, respectively, from their peaks in September. This sharp correction has led to a moderation in equity valuations across market segments. However, one-year returns for several new SIP investors have turned negative.

 

Debt funds recorded sharp net inflows of ₹1.29 trillion last month.

 

“This rebound reversed the major outflows of ₹1.27 trillion in December 2024, reaffirming the cyclical nature of debt fund flows. Liquid funds led the recovery with inflows of ₹91,592 crore, followed by money market funds (₹21,915 crore) and overnight funds (₹18,936 crore). This surge follows the quarter-end tax outflows in December, as corporates and institutions redeploy idle cash into short-duration debt instruments for liquidity management. These funds offer minimal interest rate risk and provide quick access to capital, making them ideal for surplus liquidity parking,” said Nehal Meshram, senior analyst — manager research, Morningstar Investment Research India.