MF flows might decline and it might have started already

What does the Mutual Fund inflow of August reflect? Do they show more inflows coming and more people are investing in MF, or is there more outflow? The truth is, it's volatile, and more outflow is on the other side of the table. The best speaker for the same is not the CEO  but the MFD, who is managing and interacting more with clients.

The recent redemptions in equity mutual funds, especially from small- and thematic-cap schemes, suggest investors may be cashing out to lock profits and diverting money into real estate purchases (housing, land, commercial property).

Rising property launches in Tier-1 and Tier-2 cities, coupled with record-high residential sales (Q1 & Q2 FY26), back this up.  We are more optimistic about the consumption boom, but the reality is that consumption is happening beyond the capacity of one individual's savings by redemption of mutual fund investments. Redemption-led liquidity is also flowing into big-ticket consumption—cars, luxury goods, weddings, and travel.  With GDP growth led by consumption (private final consumption expenditure contributing ~58% of GDP), household spending remains a dominant driver.  Now, the beauty of this pattern of behavioural aspect is that this isn’t necessarily “fear-driven exit”—rather, it’s a rotation of wealth into tangible assets and lifestyle consumption.

Investors see real estate as inflation-hedged and consumption as a status upgrade, while SIPs continue steadily (showing they haven’t abandoned markets entirely). Well, many might not be buying houses now, but many of them are doing renovations, which are often neglected to be counted. Renovation is also a significant cost.

With GST rates rationalisation, we will witness more outflow from mutual fund investment portfolios, which is nothing but the accumulated profits, including principal.

Industry Assets Under Management (AUM) Slight dip to ₹75.18 lakh crore (vs. ₹75.36 lakh crore in July). This suggests that the consumption boom is gaining momentum. In other words, the AUM dip is less about loss of confidence in mutual funds and more about reallocation of wealth to real economy spending — a sign that India’s consumption cycle is entering a high-growth phase.

 Mutual Fund Flows – August 2025 Snapshot

The Indian mutual fund industry witnessed a 22% decline in equity inflows, dropping to ₹33,430 crore from July’s record ₹42,702 crore. The flows reflect shifting investor sentiment amid global trade tensions and U.S. tariff pressures.

Key Segmental Trends

• Small-cap Funds: Largest decline at 23%, down to ₹4,992.91 crore from ₹6,484.43 crore – indicating risk aversion at higher valuations.
• Large-cap Funds: Strong comeback with 33% growth, rising to ₹2,834.88 crore from ₹2,125.09 crore, as investors sought safer bets.
• Mid-cap Funds: Marginal 2.8% increase, inching up to ₹5,330.62 crore from ₹5,182.49 crore – suggesting cautious optimism.
• Gold ETFs: Big winner, clocking ₹2,189.51 crore inflows, a 74.3% jump to a 7-month high, reflecting flight-to-safety demand.

Industry Overview

• AUM: Slight dip to ₹75.18 lakh crore (vs. ₹75.36 lakh crore in July).
• SIPs: Robust at ₹28,265 crore, nearly flat compared to July’s record ₹28,464 crore, reinforcing retail discipline.

Investor Sentiment Takeaway

• Shift to safety: From volatile small-caps to large-caps and gold.
• Macro overhangs: U.S. tariffs on Indian goods and broader global uncertainties are driving cautious allocation.
• Steady SIP flows: Retail investors remain committed despite volatility.

 Conclusion:

Due to the current consumption boom during the festive season and Christmas, we anticipate a decrease in savings and an increase in spending, resulting in a lower inflow into MF. India’s household savings rate has significantly declined, dropping to 18.1% of GDP in FY24, a third consecutive year of decline, and the lowest in nearly five decades (from 34.6% in 2011-12). Net financial savings fell to 5.3% of GDP in FY23 from 11.5% in FY20, with a slight recovery to 5.7% in FY24. This reflects a shift from financial savings (bank deposits, mutual funds) to physical assets like real estate and gold. Well, don’t try to take the credit that all money comes into MF, since if that would have been the case, the  Indian equity investments should not have been 6% currently ( including M2M).