 "Two of the largecap-oriented mutual fund (MF) offerings — flexicap and largecap funds — witnessed a spike in investor interest in October amid a fall in the equity market.")
Given the stock market correction, there have been concerns about investor attitudes. Foreign portfolio investors (FPIs) have been big net sellers through months, while the stock market has been buoyed up by domestic buying, especially via household inflows. If mutual funds see a slowdown or reversal of retail inflows, there could be a much deeper correction.
Such a trend of pessimism would show up as lower inflows to mutual funds, including lower SIP inflows. It would also result in lower trading volumes and lower prices in smallcaps and in futures & options (F&O) where retail investors take direct exposure.
In Feb’25, daily trading volumes on exchanges did dip with average daily turnover (ADTO) declining 4 per cent month-on-month (M-o-M) to ₹289 trillion. The new F&O regulations have impacted F&O ADTO, which is down 45 per cent. Retail participation has declined. Retail cash ADTO declined 12 per cent M-o-M to ₹34,200 crore, while retail F&O premium ADTO declined 6 per cent M-o-M to ₹55,900 crore. Demat additions were the lowest since May’23 at 2.3 million in Feb’25 (2.8m in Jan’25).
Mutual fund assets under management (AUM) declined 1 per cent M-o-M in Feb’25 to ₹ 67.6 trillion (up 24 per cent Y-o-Y) with equity AUM affected by weak trends. Equity AUM dipped 3 per cent M-o-M to ₹28.8 trillion. SIP momentum was reasonable with ₹26,000 crore of inflows in Feb’25 vs. ₹26,400 crore in Jan’25. SIP commitments tend to be locked in, often with renewal coincident with the new financial year so April data could be crucial. F&O volumes should stabilise with all new regulations now in force.
In cash, NSE retained a dominant position with a 95 per cent market share in Feb’25. BSE is seeing incremental market share every month in the F&O segment. BSE had a notional turnover market share of 36 per cent in Feb’25 and option premium turnover of 19 per cent (18 per cent in Jan’25).
The MF industry had inflows of ₹40,100 crore (inflow of ₹1.9 trillion in Jan ’25). This was due to M-o-M decline in Liquid and Equity inflows while debt saw net outflows of ₹8,200 crore.
Excluding SIP, net equity inflows (including hybrid) declined 54 per cent M-o-M to ₹ 10,000 crore (₹22,000 crore in Jan’25). The equity segment (excluding hybrid) saw net inflows of ₹29,200 crore (vs ₹39,700 crore in Jan’25). Net equity inflows (ex-NFO) stood at ₹26,700 crore in Feb’25 vs. ₹35,800 crore in Jan’25 (decline of 25 per cent MoM).
The Industry AUM fell by 4 per cent to ₹64.54 trillion, only the third time AUM has declined M-o-M in the last 18 months. In Feb’25, HDFC Asset Management Company (AMC) and ICICI Prudential AMC gained 5bps and 32bps market share in equity AUM respectively, while Nippon India, Axis and Quant lost market share. The SBI, UTI and PPFAS AMCs also gained market share in Feb’25. These trends are largely in line with Q3FY25 when most AMCs did well.
The mutual fund data indicates some erosion of sentiment but it still seems positive. As mentioned above, April data, especially SIPs, would be critical for judging trends. Household participation has increased steadily through the last few years and many retail investors never witnessed a serious bear market. So their behaviour is less predictable.
There is retail under-penetration with only 53 million unique mutual fund investors, that number could easily grow 3X or 4X in the long-term.
The industry is regulated on transparent lines with strong competition. Customer “stickiness” depends on the commitment to long-term wealth creation. Analysts remain positive on the long-term and there are buy calls on leading AMCs like HDFC AMC, Aditya Birla Sun Life and Nippon India. But most EPS estimates have been pared down for FY26.
