The global uncertainty and geopolitical tension including the Operation Sindoor has led to significant investor caution across the mutual fund industry. The inflows to equity funds dropped sharply in May to Rs 19,013 crore — the lowest level since April 2024 — according to data released by the Association of Mutual Funds in India (AMFI). Additionally, the redemptions also saw a sharp uptick in May. They have risen to Rs 37,591 crore from Rs 32,479 crore indicating that investors could be choosing to capitalise on recent market gains by booking profits.
Equity inflows dip across large, mid, and small-cap funds
However, the total Assets Under Management (AUM) rose to a record Rs 72.2 lakh crore from Rs 70 lakh crore in April, net inflows into equity mutual funds stood at Rs 19,013 crore in May, down 21.6 per cent from Rs 24,253 crore in April. This significant drop signals increased investor caution amid market uncertainties.
Large-cap fund inflows saw a sharp 53.2 per cent decline in May. These funds attracted only ₹1,250.50 crore in May, compared to ₹2,671.46 crore in April.
Mid-cap fund inflows also decreased slightly, with ₹2,808.70 crore in May, down from ₹3,313 crore in the previous month.
Small-cap funds followed the same trend, receiving ₹3,214 crore in May, compared to ₹3,999.95 crore in April.
‘Operation Sindoor’ triggers investor caution
Himanshu Srivastava – Associate Director- Manager Research, Morningstar Investment Research India outlined that, “the broader slowdown in equity inflows can be attributed to a mix of factors: a less buoyant equity market in May compared to April, concerns around global economic headwinds, and a possible consolidation phase or profit booking in the domestic equities following sharp rallies in the previous months and stretched valuations. Also, heightened global volatility—stemming from geopolitical tensions with India launching Operation Sindoor against Pakistan and concerns around global inflation, contributed to a risk-off sentiment among some investors.”
Akhil Chaturvedi, Executive Director & Chief Business Officer, Motilal Oswal AMC pointed out, “Equity Net Sales has seen a sharp downtick of 22 per cent largely on account of higher redemptions by Rs 5,000 crore in May 2025 (viz April 2025). This was probably due to the war-like situation in the beginning of the month leading to sentiment being cautious. SIP numbers over Rs 26,000 crore is very encouraging, which implies that the fresh investment preferred route has been SIP than lumpsum.”
ELSS, thematic and NFO inflows rise
Despite the overall drop, some equity categories did well:
- ELSS funds (Equity Linked Savings Schemes) attracted ₹678 crore in May, up from ₹372 crore in April.
- Thematic funds witnessed slightly higher inflows at ₹2,052.50 crore, compared to ₹2,001 crore in April.
- Dividend yield funds, however, saw an outflow of ₹20.82 crore in May, reversing from ₹51.47 crore inflow in April.
- New Fund Offer (NFO) inflows surged to ₹4,170 crore from just ₹350 crore in April — a strong sign of interest in new mutual fund launches.
SIP contributions remain steady
Systematic Investment Plan (SIP) contributions remained stable at ₹26,688 crore in May, reflecting consistent long-term investor participation despite market fluctuations.
Debt funds showing mixed trend
The debt fund segment presented a mixed picture in May. Liquid funds saw heavy outflows of ₹40,205.4 crore, a sharp reversal from the inflows of ₹1.18 lakh crore recorded in April. In contrast, corporate bond funds witnessed strong inflows of ₹11,983.3 crore, significantly higher than the ₹3,458.42 crore seen in the previous month. Credit risk funds continued to face outflows, but the figure slightly improved to ₹248 crore in May from ₹301.7 crore in April.
Passive funds see dip in ETF inflows, gold turns positive
Among passive investment options, Exchange Traded Funds (ETFs) witnessed a significant decline in net inflows, which dropped to ₹4,086.8 crore in May from a robust ₹19,056.66 crore in April.
Gold ETFs, on the other hand, showed a positive turnaround, recording inflows of ₹292 crore in May after facing an outflow of ₹5.82 crore in the previous month.
Despite lower equity inflows and debt outflows in certain segments, the record-high AUM of ₹72.2 lakh crore indicates that investors continue to trust mutual funds for long-term wealth creation. The jump in corporate bond inflows and steady SIP figures reflect a balanced approach amid market volatility.
