Rs 4 trillion and rising: MFs on course for record equity purchase in 2025

Mutual funds' equity investments top Rs 4 trillion so far in 2025 and may breach Rs 5 trillion by year-end, offsetting foreign selling and steadying markets

Mutual funds’ net equity investments in 2025 have breached the ₹4 trillion mark.

 

So far this year, domestic fund managers have channelled ₹4.02 trillion into equities. They had invested a record ₹4.3 trillion in equities during 2024.

 

If the current pace continues, mutual funds are on course not only to eclipse last year’s figure but potentially to cross the ₹5 trillion mark.

 

The ongoing calendar year marks the fifth consecutive year of positive equity flows from mutual funds. The steady run of inflows in recent years has been supported by a robust post-pandemic market performance.

 

This year’s resilience, however, stands out, coming against a subdued market backdrop and persistent selling by foreign portfolio investors (FPIs). FPIs have withdrawn ₹1.6 trillion from domestic equities. As a result, the benchmark Nifty 50 is up only about 5 per cent so far this year.

 

 

Strong domestic buying has helped cushion the impact of FPI outflows, limiting downside pressure on the market. Market observers, however, caution that continued inflows will depend on whether investor sentiment holds up if market weakness persists. 

 

“It is encouraging to see robust domestic participation. That said, sustained market performance remains vital,” said a senior fund house official. 

 

“Retail investors have shown remarkable faith even during past corrections, but a prolonged downturn could weigh on sentiment. On the positive side, valuations are now below long-term averages, which augurs well for medium-term returns,” the official added

 

The recent acceleration in mutual fund deployment has been supported by steady inflows across equity categories, even amid bouts of volatility and short-term corrections.

 

Systematic investment plans (SIPs) alone contributed gross inflows of ₹2.2 trillion between January and August 2025, with nearly 90 per cent directed towards equity-oriented products. During the same period, total net inflows into active equity funds -- including SIPs and lump-sum investments -- stood close to ₹2.4 trillion.

 

The stability of SIP flows continues to provide a critical anchor for domestic equities, helping reduce the market’s dependence on FPI activity.

 

In addition to fresh inflows, fund managers’ equity purchases have reflected portfolio realignments within hybrid schemes and shifts in cash positions.

 

While the scale of mutual fund investments over the past two years appears substantial, industry analysts view the trend as part of a broader structural evolution in India’s household savings behaviour. “Domestic ownership in Indian equities has grown materially in recent years, but penetration remains low,” noted Yogesh Aggarwal, head of research-India, HSBC, in a note dated August 25. “Less than 8 per cent of household financial assets are invested in equities, compared to as much as 35 per cent at the peak in the US. Even in China, A-shares command a valuation premium over H-shares owing to higher domestic participation.”