Foreign investors have been actively fleeing Indian equities for two years now. But Indian indices have still proved resilient to events such as the India-Pakistan conflict, Iran war and the resulting oil shock.

It is domestic institutions, now sitting on 18.3 per cent of listed shares by value (compared to 16.7 per cent for FPIs) that have been absorbing bouts of manic selling by FPIs. Their actions are, in turn, decided by retail investor behaviour.

So, in March, as war clouds gathered, oil prices shot past $100 and the rupee slid 4 per cent, how did Indian mutual fund investors behave? Data on MF flows from the Association of Mutual Funds of India (AMFI) show five trends which are useful for your investing decisions.

Pullouts did spike

When markets fall, the first instinct of a newbie investor is to panic and sell her equity holdings. This did happen in March 2026. As the Nifty50 fell 11 per cent in March, open-end equity MFs saw their redemption demands spike 20 per cent to ₹43,325 crore in March from ₹36,098 crore in February. This number was also 37 per cent higher than the year-ago number of ₹31,443 crore in March 2025.

The higher redemption demands likely came from two sets of investors. Investors who joined the equity bandwagon in the last five years post-Covid, who have enjoyed big equity gains with very little volatility. Seasoned investors looking to save on capital gains tax by ‘harvesting’ losses before the March 31 deadline. It is hard to say which cohort made up the bigger number.

However, it is likely that newer investors made up the bulk. The MF industry’s equity accounts have shot up from 6.26 crore in March 2020 to 18.27 crore in March 2026. This suggests that two-thirds of the current crop of equity MF accounts are held by post-Covid newbie investors. These investors probably accounted for a larger proportion of the redemption numbers.  

But inflows rose more

Mutual fund houses, however, did not need to liquidate shares to meet these redemption requests. This is because new inflows into equity MFs spiked far more than redemption demands. In March 2026, investors poured ₹62,076 crore in new money into equity funds.

This led to net inflows into equity funds (after deducting redemptions) jumping to ₹40,450 crore in March 2026. Net flows were 56 per cent higher than February 2026 and 52 per cent higher than the average of ₹26,500 crore in the preceding five months.

It needs mention that equity MFs saw similar inflows of ₹41,887 crore in October 2024 (a 21 per cent jump) when the Nifty50 corrected over 8 per cent from its September peak. The Covid crash of March 2020 also saw a spike in net inflows into equity MFs.

All this suggests that equity MFs in India now have a sufficient number of seasoned investors, who double down on their purchases after material corrections. However, historical trends suggest that while investors rush to buy the dip immediately after a sharp market fall, they begin holding back if the correction prolongs.

As of now though, the surge in equity inflows can help domestic institutions continue to hold the floor by offsetting FPI sales.  

Misreading SIPs

After the AMFI data was out, many commentators have been ringing alarm bells over the rising ‘SIP stoppage ratio’. Along with inflows into different fund categories, AMFI gives out numbers on new SIPs (Systematic Investment Plans) started, SIPs stopped and the number of outstanding SIP accounts each month.

In March, there has been much hand-wringing over discontinued SIPs, at 53.3 lakh hitting a ‘new record’. They also outnumbered new SIP additions (52.82 lakh) leading to worries about the ‘SIP stoppage ratio’ exceeding 100 per cent. Many folks read this as SIP investors withdrawing more money than they put in. But this is a faulty reading of the data.

One, the industry now has 9.71 crore contributing SIP accounts through which investors are steadily plowing money into MFs. It is this stock of SIP accounts that brings in the bulk of SIP flows. New account additions and account stoppages are the tip iceberg, amounting to about 5 per cent of contributing accounts. In effect, though SIP closures overtook new additions in March, the stock of 9.71 crore existing SIP accounts continued. This is why monies flowing into MFs via SIPs at ₹32,087 crore saw an increase over February.

Two, while newer investors probably do stop SIPs when markets fall, not all SIP closures represent investors getting cold feet. Investors also routinely stop SIPs when they meet their financial goals, rebalance from one asset to another, or switch from an underperforming fund to a better one. As the number of SIP accounts held by the MF industry sets new records, SIP closures too will tend to organically rise.

Therefore, ‘record’ SIP closures are not particularly worrying. What should worry us is if the stock of contributing SIP accounts which stands at 9.71 crore, goes into a secular decline. The number of contributing SIP accounts is up from 7.74 crore in September 2024 (the market peak) to 9.71 crore now.

Popular categories

As MF investors buy the dip, which segments of the market are receiving the most inflows? AMFI data on category-wise equity flows offers some cues.

MF investors seem to have a distinct partiality for mid-cap and small-cap stocks over large-caps. This is evident from flexi-cap equity funds bagging the maximum inflows in March (₹10,054 crore), followed by mid-cap (₹6,064 crore) and small-cap funds (₹6,264 crore). Large-cap funds drew just ₹2,998 crore in inflows.  

Investors seemed unsure which themes to bet on, as sectoral and thematic funds (flows of ₹2,699 crore) saw a dip compared to February. A section of investors though not large, indulged in bargain-hunting going by the inflows into value/contra funds (₹2,425 crore in March against ₹901 crore in February).

Dry powder

While massive outflows from debt funds were only to be expected in March given advance tax obligations, hybrid funds suffering net outflows of ₹16,538 crore sprang a surprise. The bulk of this, however, came from arbitrage funds (outflows of ₹21,114 crore), which are used as parking grounds for short-term money.

This suggests that seasoned investors taking cash calls due to elevated valuations, probably decided to get back partly into equities in March. Arbitrage funds continued to manage ₹2.53 lakh crore as of March-end. This is probably the size of the dry powder held by MF investors looking to re-enter equities.

The author is a Contributing Editor

Published on April 25, 2026