Indian equity mutual funds recorded a significant increase in inflows during August, rising by almost 19% month-on-month to reach ₹29,315 crore. This marks a substantial jump from the ₹24,685 crore recorded in July, according to data released by the Association of Mutual Funds in India (AMFI).
The surge was primarily fueled by sustained investor preference for small- and mid-cap funds, even as large-cap schemes experienced outflows for the second consecutive month.
Small and Mid-Caps Lead the Charge
Among the various equity-oriented categories, small-cap funds attracted the highest inflows, pulling in ₹7,973 crore in August, an increase from ₹7,767 crore in July. This figure represents the highest inflow into small-cap funds in at least two years.
Mid-cap funds followed closely, receiving ₹6,989 crore, marking a one-year high for the category. Flexi-cap funds also saw healthy interest, with inflows totaling ₹5,059 crore during the month.
Large-Cap Funds See Outflows
In contrast to the strong performance of smaller-cap segments, large-cap funds registered an outflow of ₹1,147 crore in August. This marks the second consecutive month of withdrawals from large-cap schemes, indicating a shift in investor sentiment.
Sectoral and thematic funds also experienced outflows, with ₹53 crore and ₹1,766 crore, respectively, moving out of these categories. Dividend yield funds saw withdrawals of ₹133 crore, and ELSS (Equity Linked Savings Scheme) funds recorded outflows of ₹1,078 crore.
Reasons for Divergent Flows
Sandeep Bagla, CEO of TRUST Mutual Fund, attributed the subdued flows into large-cap funds to a lack of investor excitement surrounding the large-cap index. He noted that this index has significant exposure to sectors like BFSI (Banking, Financial Services, and Insurance), IT, and FMCG (Fast-Moving Consumer Goods), where performance and flows have remained moderate due to valuation concerns and slower growth.
Bagla highlighted that investor interest has shifted towards small- and mid-cap stocks, which are currently supported by stronger earnings growth. He observed that more earnings upgrades are occurring among mid- and small-cap companies, with incremental earnings growth increasingly originating from these segments. He anticipates that strong flows into mid- and small-cap funds will continue for at least another six months.
SIP Contributions Hit All-Time High
Investor participation through Systematic Investment Plans (SIPs) remained robust, hitting an all-time high. Monthly SIP contributions rose to ₹32,297 crore in August, up 3.8% from ₹31,115 crore in July.
The industry registered 66.39 lakh new SIP accounts during August, while 53.82 lakh SIP accounts were discontinued, indicating a net positive addition to the SIP base.
Other Investment Avenues
Exchange-Traded Funds (ETFs) also saw significant inflows, totaling ₹10,161 crore. Equity ETFs accounted for the largest portion at ₹7,237 crore, followed by gold ETFs with ₹2,597 crore and silver ETFs with ₹1,271 crore. Specialized Investment Funds (SIFs) recorded inflows of ₹7,699 crore.
On the debt side, mutual funds experienced an outflow of ₹8,127 crore, a sharp reversal from the ₹1.87 lakh crore inflow seen in July. Liquid funds attracted the highest inflow among debt categories at ₹19,934 crore, with money market funds receiving ₹11,734 crore.