In the past few years, lakhs of Indians have piled in to mutual funds, hoping to ride the bull run in the stock markets. But, over the past few months, the bears have been in charge, with the markets spiralling down amid massive selling by foreign institutional investors in the wake of global trade and tariff uncertainties and the worries over tepid corporate earnings and slow economic growth.
As of March 13, the BSE Sensex was down more than 14 per cent from its peak. The mid and smallcap stocks have seen a sharper fall―the BSE Midcap index tumbled over 21 per cent from its high and the BSE Smallcap index slumped 24 per cent. With one-year returns from SIPs (systematic investment plans) flashing red, more investors seem to be hitting the pause.
Total inflows into equity mutual fund schemes in February were down 26 per cent at around Rs29,303 crore, compared with January (around Rs39,687.78 crore). The inflows in January itself were 4 per cent lower than December.
Midcap and smallcap schemes, which had been a big draw among investors, have seen around 34 per cent decline in flows month-on-month. Sectoral/ thematic category, which saw numerous scheme launches over the past 18 months, too, have seen a sizeable decline in flows―down 37 per cent from Rs9,016.60 crore to Rs5,711.58 crore.
To be fair, inflows into equity schemes are still sizeable. But, will it continue if markets remain volatile and portfolios in red for a long period?
SIP contributions have been declining over the last few months. After peaking at Rs26,459 crore in December 2024, they marginally fell to Rs26,400 crore in January and further to Rs25,999 crore in February. New SIP registrations have come down from 56.19 lakh in January to 44.56 lakh in February. Also, SIP closures were more than they were registered in February (54.7 lakh SIPs discontinued).
The risk-off sentiments triggered by global trade tensions have weighed on investor decisions. “Continuous monthly market correction has led to slowdown of sales in February. Investors are being cautious in allocations and may postpone or stagger in near future,” said Akhil Chaturvedi, executive director and chief business officer at Motilal Oswal AMC.
Investment platforms, however, remain positive, citing that the monthly SIP AUM still hover around a decent Rs26,000 crore. “Mutual funds have got the advantage of having seen multiple cycles in the last 25-30 years. After each cycle, markets have gone for a toss and then come back,” noted A. Balasubramanian, MD and CEO of Aditya Birla Sun Life AMC.
Experts say the key to generating wealth through mutual funds is systematic investment over a long term. But, having a diversified portfolio across asset classes like equity, fixed income and commodities is key to reducing risks as not all asset classes go up and down at the same time. “You can decide your asset allocation based on your timeframe, tolerance for market declines and return expectations. Rebalance equity allocation if it falls short by more than 5 per cent from original allocation―move some money from debt to equity and bring it back to original long-term asset allocation,” said Jiral Mehta, senior research analyst at FundsIndia.
Investing via SIPs has its inherent advantages. When markets are falling, you can accumulate more units of the scheme, which then benefits from the momentum the market gathers when in recovery. “Some of us tend to get upset during a market fall and stop our SIPs. By doing this you miss out on the benefit of accumulating units at a lower price and end up with a lower return experience despite having a long timeframe,” said Mehta.
Volatile times are an opportunity for investors to review their financial goals and risk tolerance. “Timing events consistently is impossible,” said Avnish Gulati, CEO of Zuari Finserv. “Therefore, discipline and patience are the watchwords for wealth generation.”
Balasubramanian bats in favour of asset allocation to ride the market volatility. Those who are coming in with fresh investments should choose hybrid funds, he said. And “small and midcap funds are not something you should ignore,” he said. “But, you have to keep your timeframe longer―about five to seven years.”