A subtle shift in equity fund flows as investors change strategy

12 Jun 2025 , 03:24 PM

EQUITY FUND INFLOWS – ROBUST BUT WANING

In the latest month of May 2025 for which AMFI data is available, the total inflows into equity funds was just about ₹19,012 Crore. This was lower than the net inflows into hybrid funds in May 2025 at ₹20,942 Crore; a rather uncommon trend. If you look at the flows into equity funds, it touched ₹41,157 Crore in December 2024, but has since been progressively waning; more than halving from those levels.

There are obvious reasons for this fall. This was the period when markets had touched new highs and then fallen sharply. Also, FPI selling was very high during this period. All these factors made individual investors cautious. Most of the retail investors were sitting on deep losses in their equity and mutual funds portfolios, which resulted in a slowdown in equity fund flows. But, more interesting is the mix of flows!

EQUITY FUND CATEGORIES WITH BEST FLOWS

The table below captures the month-wise flows into various categories of equity funds for last 7 months in a row. Here is a quick dekko.

Fund Category	May-25	Apr-25	Mar-25	Feb-25	Jan-25	Dec-24	Nov-24	Cat Total
Thematic Funds	2,052	2,001	170	5,712	9,017	15,332	7,658	41,942
Flexi Cap Funds	3,841	5,542	5,615	5,104	5,698	4,731	5,084	35,615
Mid-Cap Funds	2,809	3,314	3,439	3,407	5,148	5,093	4,883	28,093
Large Cap Funds	1,250	2,671	2,479	2,866	3,063	2,011	2,548	16,888
Small Cap Funds	3,214	4,000	4,092	3,722	5,721	4,668	4,112	29,529
Large & Mid-Cap	2,691	2,552	2,718	2,656	4,123	3,812	4,680	23,232
ELSS Funds	-678	-372	735	615	797	188	619	1,904
Value/Contra Funds	-92	1,073	1,553	1,347	1,556	1,514	2,088	9,039
Multi-Cap Funds	2,999	2,552	2,753	2,518	3,567	3,075	3,626	21,090
Focused Funds	947	885	1,386	1,288	783	456	430	6,175
Dividend Yield Funds	-21	51	141	69	215	277	216	948
Monthly Totals	19,012	24,269	25,081	29,304	39,688	41,157	35,944

Data Source: AMFI (All figures are ₹ in Crore)

There are obvious favourites visible in the equity fund categories. Here are some key highlights.

• Thematic funds accounted for a bulk of the equity fund inflows in the last 7 months accounting for 19.6% of the total inflows. That is not surprising, as the alpha hunting was done through sector / thematic funds and even NFOs were concentrated in these funds.
• Close behind thematic funds have been the flexi-cap funds, which accounted for 16.6% of all equity fund flows. It must be noted here that if flexi cap funds and multi-cap funds are added, then they actually account for 26.4% of all flows into equity funds.
• Small cap funds at 13.8% of flows and mid-cap funds at 13.1% of flows are the next prominent category attracting maximum flows into equity funds. These are the typical alpha stories, as investors like to bet on smaller stocks for higher returns.

If you add up the permutations and combinations of lower cap funds and thematic funds; they have jointly accounted for 73% of all flows. Alpha is surely a big active driver.

SUBTLE SHIFT IN LEADERSHIP TRENDS AMONG EQUITY FUNDS

There is a very subtle shift happening in last 7 months and that is evident if you look at the leadership in each of these months. Between November 2024 and February 2025, the leadership in terms of flows clearly belonged to sectoral / thematic funds. Between March and May 2025, the leader in terms of monthly flows was flexi-cap funds. Investors have clearly shifted from looking for alpha in sector funds to looking for allocation alpha by combining large caps with mid-caps and small caps. It is more of an allocation approach.

To be fair, there has also been a drying up of sectoral / thematic NFOs since March 2025. However, the sharp fall in flows in flows into sector funds is clearly indicative of investors moving out of thematic fads. That is a good thing in retrospect!