In a remarkable demonstration of confidence in equity mutual funds, Indian investors invested ₹34,697 crore into equity mutual funds in May 2024. This figure represents an 83% increase from the ₹18,917.1 crore invested in April, marking an all-time high for equity mutual fund inflows, according to the latest data from the Association of Mutual Funds in India (AMFI).

Surge in equity mutual fund inflows

The introduction of new thematic schemes that captivated the market had a significant impact on the surge in equity mutual fund investments. In particular, sectoral and thematic funds achieved their highest inflows ever, totaling ₹19,213.4 crores. This brought the category's assets under management to ₹3.37 lakh crore, making it the second-largest category among equity-oriented funds. A major contributor to this surge was the HDFC Manufacturing Fund, which alone attracted ₹9,563 crore.

Performance of various fund categories

Despite a withdrawal from debt-oriented funds, there was an increase in equity-oriented funds, which resulted in a decline in net inflows into mutual funds overall. Here's a closer look at how different categories of funds performed:

Large-cap funds: Inflows nearly doubled to ₹663.1 crore in May from ₹357.6 crore as compared to April.

Multi-cap funds: WItnessed inflows of ₹2,644.9 crore, slightly down from ₹2,723.9 crore in April.

Small-cap funds: Attracted ₹2,724.7 crore in May, up from ₹2,208.7 crore in April.

Mid-cap funds: Investments rose to ₹2,605.7 crore from ₹1,793.1 crore the previous month.

Systematic investment plans (SIPs) maintain momentum

SIPs will be a popular choice among investors, contributing significantly to the overall inflows. In May, the total SIP contribution reached a new high of ₹20,904.4 crore, up from ₹20,371 crore in April. The majority of these investments went into equity-linked funds. The net SIP contribution in May, accounting for outflows from cancellations and the end of SIP periods, stood at ₹9,226.1 crore, up from ₹8,660 crore in April.

AMFI CEO V. Chalasani highlighted that despite the decline in overall financial savings, SIPs will continue to be in the spotlight. This trend further underscores the growing reliance and confidence in SIPs as a steady investment vehicle.

Decline in debt-oriented fund inflows:

Contrary to the bullish sentiment in equity funds, debt-oriented funds experienced significant outflows.

Total inflows into debt-oriented funds were approximately ₹42,295 crore in May, a sharp decline from ₹1.9 lakh crore in April.

Liquid funds, which saw inflows of ₹25,873.4 crore in May, also experienced a notable drop from approximately ₹1.03 lakh crore in April.

Credit-risk funds followed suit, with outflows of ₹540.5 crore compared to ₹359 crore in April.

This decline in debt-oriented funds reflects a huge shift in investor sentiment, with more investors leaning towards equity investments amid expectations of higher returns.

Mutual fund landscape

Despite the withdrawal from debt funds, overall mutual fund inflows in May totaled ₹1.11 lakh crore, down from ₹2.39 lakh crore in April. However, net assets under management (AUM) increased to ₹58.9 lakh crore in May from ₹57.3 lakh crore in April, demonstrating healthy growth in the mutual fund industry.

Analysis and insights

1.Market optimism: The increase in equity mutual fund inflows indicates a favourable mood among investors towards the equity market. This confidence could be fueled by improving economic indicators, rising company profitability, and the anticipation of continued market rises.

2.Thematic and sectoral fund attraction: The substantial inflows into sectoral and thematic funds highlight a growing interest in specific market segments that are perceived to have high growth potential. The significant inflow into the HDFC Manufacturing Fund is a testament to this trend.

3.SIP growth: SIPs offer a disciplined approach to investing, making them attractive to a broad spectrum of investors, especially in volatile markets.

4.Shift from debt to equity: Investors' shifting risk appetites are reflected in the apparent move from debt-oriented funds to equity funds. Now that interest rates are where they are, investors are looking for higher returns on equity investments, as debt funds are providing lower returns.

5.Economic indicators: The increase in equity fund investments is consistent with general economic trends. Reforms and growth-promoting policy measures, as well as India's post-pandemic economic recovery, have probably contributed to positive investor sentiment.

Future outlook

The record-breaking investment in equity mutual funds in May sets a promising tone for the coming future. Due to the strong performance of equity markets and the desire for greater returns, investors will probably continue to favour equity investments.

However, investors must remain cautious and informed. While the equity market offers substantial growth potential, it also comes with inherent risks. This is where diversification across different sectors and fund types, regular portfolio reviews, and staying informed about market trends are essential strategies for mitigating risks and maximising returns.