India’s stock indices plunged 10 per cent in the past month in the wake of the Iran war. This has been the first prolonged correction in stocks since the Covid crash. Therefore, mutual fund (MF) flows were being closely watched to gauge if the post-Covid cohort of retail investors who jumped into stock markets in large numbers were panicking.
Latest data from the Association of Mutual Funds of India (AMFI) suggest the opposite. Far from panicking and pulling out money, investors have raised their net inflows into equity funds to ₹40,450 crore in March from ₹25,977 crore in February 2026, a 56 per cent jump. Flows through the Systematic Investment Plan (SIP) route hit a new record in March, bringing in ₹32,087 crore and up 7.5 per cent from the previous month. All this is good news.
Foreign portfolio investors (FPIs) have been engaged in a relentless barrage of selling in Indian stocks, prompted by valuation worries and risk aversion. But domestic investors have to put a floor to the correction and offer companies continued access to capital. While the big picture suggests that domestic investors as a class are displaying a high degree of maturity, a deeper dive into the data suggests that not all investors are on the same page. For one, while macro risks today argue for sticking with larger companies and being valuation-conscious, the pattern of MF flows suggest continued high risk-taking by some investors.
In March, mid- and small-cap funds received many times the inflows (₹12,326 crore) that large-cap funds (₹2,997 crore) and value funds (₹2,155 crore) did. Rather than simply urging investors to ‘buy when there’s blood on the street’, the MF industry and its intermediaries ought to steer investors towards the right categories of funds at the appropriate times. Two, while aggregate SIP flows rose in March, SIP stoppages spiked to 53.38 lakh accounts from 49.87 lakh. The number of new SIPs initiated also fell from 65.7 lakh to 52.8 lakh. This does not make a material dent in the 9.71 crore active SIP accounts or in the aggregate MF inflows. But it does show that while seasoned investors are probably topping up their SIPs, newer investors are spooked into stopping them. As SIPs are designed mainly to average one’s cost in falling markets, some investors clearly do not understand how SIPs work. It is up to the fund industry, which sits on large coffers of ‘investor awareness’ money, to educate investors.
It is also moot if investors are maintaining a desirable allocation to safer asset classes such as debt funds. The number of debt fund folios managed by the industry at 82.8 lakh is at a fraction of the equity accounts which total 18.27 crore (as of end-March 2026). This is partly due to the extremely unfriendly taxation of debt fund gains at slab rates. However, the MF industry also needs to make serious efforts to popularise debt so that retail investors handle market falls with equanimity.
Published on April 15, 2026