Mutual Fund Flows Slow: AUM Rises 12.2% Amid Market Jitters, Signaling Investor Caution

Mutual Fund Flows Slow: AUM Rises 12.2% Amid Market Jitters, Signaling Investor Caution​

MF Industry AUM Growth Decelerates to Slowest Pace in Three Years​

The mutual fund industry saw its assets under management (AUM) grow by 12.2 percent in FY26. This expansion added ₹ 8 lakh crore to the total asset base, bringing the overall AUM to ₹ 73.73 lakh crore.

This growth rate marks a noticeable slowdown compared to preceding years. Notably, the expansion was significantly lower than the near 23 percent growth seen in FY25 and the robust 36 percent surge recorded in FY24.

Volatility Dampens Overall Asset Accumulation​

The moderation in mutual fund asset growth was attributed to sustained volatility within the Indian equity markets throughout the fiscal year. Several factors contributed to this subdued growth environment.

Elevated valuations, coupled with subdued corporate earnings, kept market participants cautious. Geopolitical tensions, including trade-related concerns, and persistent Foreign Institutional Investor (FII) selling also weighed on investor sentiment.

More acutely, selling pressure intensified following the US-Iran-Israel conflict. This global event pushed crude oil prices higher, simultaneously fueling concerns regarding India’s overall fiscal position.

Equity Market Performance Reflects Investor Concerns​

The downturn in broader market indices mirrored the sector's slowdown. During FY26, the Sensex and Nifty declined by 7 percent and 5 percent, respectively.

Mid-cap and small-cap segments also witnessed notable dips. The BSE MidCap 150 index fell by 1 percent, while the SmallCap 250 index experienced a steeper decline of 6.5 percent.

Resilience Seen in Retail Investment Channels​

Despite the macro headwinds affecting equities, retail investor participation demonstrated underlying strength. Systematic Investment Plan (SIP) contributions during FY26 reached ₹ 3.5 lakh crore.

This represented a solid increase of 20.7 percent compared to the ₹ 2.9 lakh crore contributed in the previous year. Furthermore, the network of engaged investors grew, with the number of contributing SIP accounts rising to 9.72 crore from 8.12 crore year-over-year.

Expert View: Valuation Correction and Emerging Risks​

A recent report from Jefferies India suggests that the recent correction in Indian equities has substantially improved valuations. The market, which had previously commanded a premium, has now moved toward fairer and approaching attractive levels.

The brokerage noted that much of the foreign institutional selling had already occurred earlier in the year, suggesting limited immediate downside pressure from that specific source.

However, the analysis highlighted two critical risks investors should watch. The first is any escalation involving Iran that could cause crude oil prices to spike. The second risk involves a potential slowdown in mutual fund inflows, which could weaken a crucial source of market support and heighten volatility.

Sectoral Deep Dive: Midcap and Smallcap Outperform​

Examining category performance, large-cap funds saw their AUM remain relatively flat at ₹ 3.66 lakh crore throughout the fiscal.

In contrast, midcap and smallcap funds showed distinct performance. Midcap funds recorded growth of nearly 13 percent, pushing AUM to ₹ 4.18 lakh crore. Smallcap funds also saw gains, with AUM rising to ₹ 3.35 lakh crore.

Multi-cap funds benefited from a 14 percent increase in AUM. Value-contra, focused, and sectoral thematic funds experienced only marginal growth. Conversely, the ELSS schemes registered a notable 6.4 percent decline in AUM during the fiscal, marking declines in most categories since FY20.