Daijiworld Media Network – Mumbai
Mumbai, Jun 17: India's mutual fund industry continued to witness strong retail participation in May, with systematic investment plan (SIP) contributions nearing Rs 31,000 crore and equity mutual funds extending their net inflow streak to 63 consecutive months.
According to Vallum Capital's Monthly Macro Grid Chartbook, the number of active SIP accounts rose to 9.64 crore during the month, underscoring the growing influence of retail investors in the domestic market.
However, the report highlighted a notable trend: the best-performing mutual fund categories did not attract the highest investor inflows.
Among domestic equity funds, micro-cap funds emerged as the top-performing category in May, delivering average returns of 5.7 per cent. Small-cap funds followed with returns of 3.4 per cent and attracted net inflows of Rs 2,229 crore.
Mid-cap funds generated returns of 1.6 per cent and received Rs 3,898 crore in inflows.
In contrast, large-cap funds, which delivered a comparatively modest return of 1.5 per cent, attracted the highest inflows at Rs 8,565 crore. Flexi-cap funds returned 2.1 per cent and drew Rs 5,350 crore, while large and mid-cap funds received Rs 2,617 crore despite generating returns of 1.9 per cent.
The report noted that the trend reflects the growing dominance of SIP-driven investing, where monthly investments continue to flow into large-cap and diversified funds irrespective of short-term market performance.
Large-cap funds, which now manage assets exceeding Rs 10.5 lakh crore, remain the preferred destination for long-term investors due to their perceived stability and liquidity.
"The pattern is unambiguous: the lower the return, the more flows the category received. This is not investor irrationality; it is SIP mathematics," the report observed.
Within sectoral and thematic funds, banking and financial services (BFSI) funds led performance charts with returns of 5.5 per cent and attracted Rs 1,013 crore in net inflows.
PSU Bank funds gained 6.9 per cent and drew Rs 436 crore, while Private Bank funds returned 6.5 per cent and received Rs 329 crore. Interestingly, broader banking funds posted similar returns but witnessed net redemptions of Rs 421 crore, indicating investor preference for more targeted sectoral exposure.
Transportation and Logistics funds returned 4.4 per cent and attracted Rs 194 crore, while Auto funds gained 4.2 per cent but recorded a marginal outflow of Rs 18 crore.
Technology funds showed signs of recovery, generating returns of 1.6 per cent and attracting Rs 178 crore after recording outflows in April. The inflows were largely concentrated in passive IT index funds and broader technology funds, while Digital India-themed funds continued to witness redemptions.
Consumption funds emerged as one of the weakest categories, returning just 0.8 per cent and witnessing net outflows of Rs 235 crore.
Defence funds continued to attract investor interest with inflows of Rs 156 crore, whereas Railway funds suffered the steepest sectoral decline, posting losses of 7 per cent and attracting virtually no fresh investments.
Factor-based funds, now managing assets worth around Rs 5 lakh crore, also displayed mixed trends. Momentum funds delivered the highest return among factor strategies at 2.9 per cent but attracted only Rs 157 crore. Growth-oriented funds led inflows with Rs 766 crore, followed by Focused funds at Rs 662 crore and Contra funds at Rs 421 crore.
Meanwhile, traditionally defensive strategies lost favour. Quality funds recorded a negative return of 0.3 per cent and saw outflows of Rs 28 crore, while Low Volatility funds witnessed redemptions of Rs 122 crore despite ongoing geopolitical tensions and market uncertainty.
The report also highlighted the growing divergence between domestic and foreign investor behaviour. While foreign institutional investors (FIIs) sold equities worth Rs 32,963 crore in May, domestic institutional investors purchased shares worth Rs 82,165 crore.
Debt mutual funds, meanwhile, recorded net outflows of Rs 96,949 crore. However, analysts attributed the decline primarily to the unwinding of large treasury-driven inflows seen in April rather than any weakening in investor demand.
India's mutual fund industry now accounts for 27.65 crore investor folios, up sharply from 10.04 crore six years ago, reflecting the rapid expansion of retail participation and the growing role of SIPs in wealth creation.