Indian equity mutual funds experienced a notable decrease in inflows during May 2025, according to the latest data released by the Association of Mutual Funds in India (AMFI). The net inflow into equity mutual funds stood at ₹19,013.12 crore, marking a 21.66% drop compared to the previous month's ₹24,269.26 crore. This decline represents the fifth consecutive month of decreasing inflows, reaching a one-year low.

Category-wise Performance

A closer look at the data reveals a widespread decline across various equity fund categories:

• Largecap Funds: Experienced the most significant fall, with net inflows plummeting by 53.19% to ₹1,250.47 crore. This substantial decrease indicates a shift in investor preference away from blue-chip stocks.
• Midcap Funds: Registered a 15.25% decrease, with inflows decreasing to ₹2,808.68 crore, suggesting reduced enthusiasm for mid-sized companies.
• Smallcap Funds: Also saw a softening of inflows, down by 19.64% to ₹3,214.21 crore, as investors grew more cautious amid market uncertainties.

Overall Mutual Fund Industry Trends

Despite the drop in equity inflows, the overall net assets under management (AUM) of the mutual fund industry witnessed a rise, reaching ₹72.20 lakh crore for the first time in May, compared to ₹69.99 lakh crore in April 2025. The industry witnessed net inflows of ₹29,108.33 crore in May. This indicates that while equity investments saw a dip, other areas within the mutual fund industry performed well enough to boost the total AUM.

SIP Contributions and Folios

Systematic Investment Plans (SIP) continue to be a popular investment route. The total number of mutual fund folios rose sharply by 32% in fiscal year 2025, reaching 23.45 crore, up from 17.78 crore in fiscal year 2024, indicating strong participation. A key driver of this growth was a 33.4% on-year rise in folios under growth/equity-oriented schemes, which increased to 16.38 crore, compared with 12.28 crore in the previous year. Equity schemes continued to account for the majority share, making up around 70% of the total folios.

Market Overview

Indian equity indices continued their steady rise in May 2025, supported by strong domestic and foreign inflows. The BSE Sensex and NSE Nifty gained 1.7% and 1.9%, respectively. Broader markets saw even sharper jumps, with the NSE Midcap Index gaining 6.0% and the BSE Smallcap Index gaining a substantial 10.6% for the month.

Factors Influencing Market Sentiment

Several factors have influenced market sentiment and investment patterns:

• Global Trade Uncertainties: Concerns about global trade-related uncertainties and reciprocal tariffs have created headwinds for private capital expenditure in the near term.
• Geopolitical Tensions: Easing tensions between India and Pakistan and the resolution of geopolitical issues have generally boosted market confidence.
• Corporate Earnings: Corporate earnings for the fourth quarter have generally surpassed expectations, contributing to positive market sentiment.
• FII Flows: Foreign Institutional Investors (FIIs) have shown a mixed trend, with cautious stances and periods of net buying, influenced by global cues and domestic factors.

Future Outlook

Despite the recent dip in equity mutual fund inflows, the outlook for Indian equities remains constructive. Factors supporting this positive outlook include:

• Robust Medium-Term Growth: India's growth cycle is expected to bottom out, supported by government investment in infrastructure and manufacturing, a pickup in private investments, and a recovery in the real estate cycle.
• Benign Global Commodity Prices: Favorable global prices for crude oil and fertilizers have positively impacted India's inflation, fiscal deficit, and corporate margins.
• Strong SIP Inflows: Continued strong inflows through SIPs indicate sustained investor confidence and commitment to long-term wealth creation.

While global macro environment remains challenging with heightened geo-political and economic uncertainties, India's domestic-based consumption economy provides a degree of insulation.